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The determinants of trust in supplier–automaker relationships in the US, Japan, and Korea

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Abstract

We examine the determinants of trust in 453 supplier–automaker relationships in the US, Japan, and Korea. We define trust and derive a model of its determinants drawing upon (1) an embeddedness (relationship-based) perspective, (2) a process-based perspective, and (3) an economic (hostage-based) perspective. Our findings indicate strong support for the process-based perspective in all countries; embeddedness was only important in Japan, and the economic hostage-based variable (stock ownership) was not important in any country.

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Notes

  1. Investments in transaction-specific assets have been found to enhance interfirm coordination and maximize joint performance (Dyer, 1996a; Parkhe, 1993; Perry, 1989).

  2. This assumes that exchange partners are part of the same social network.

  3. In the language of game theory, contract renewal may serve as a signal to the supplier that the automaker is playing a long-run “cooperative equilibrium.” The logic for how repeated games result in more cooperative behavior is well documented in the game theory literature (Axelrod, 1984; Fudenberg & Maskin, 1986).

  4. Of course, it is also possible for stock ownership to be inversely correlated with trust. To the extent that stock ownership serves as a credible signal of long-term commitment, it may promote goodwill trust. However, stock ownership may also be viewed as a substitute for goodwill trust. We assume a positive relationship between stock ownership and trust because in every case in our sample, the buyer had owned the supplier's stock for at least 10 years, thereby providing enough time for informal trust to develop.

  5. In our sample, the average distance between supplier plants and automaker plants was 82 miles in Japan, 129 miles in Korea, and 477 miles in the United States.

  6. Our interviews with suppliers confirmed this presumption. As one supplier executive observed, “if you have a problem, you’d better fix it yourself because [US automaker] sure won’t help. They just say, ‘if you can’t fix the problem, we’ll find another supplier who can.’”

  7. Our face-to-face contact measure did not take into account personnel turnover. Two sets of exchange partners could engage in the same number of days of face-to-face contact, but the quality of those days of contact could be different if one set of trading partners experienced personnel turnover while the other did not. We would expect social interactions and face-to-face contact to be more effective at establishing trust when turnover is low. It is also possible that our face-to-face contact (embeddedness) measure, which measured inter-firm communication rather than personal social communication, was not effective at capturing social interaction outside of a work setting.

  8. Korean automakers were excluded because they did not have plants in the United States.

  9. There was no particular reason for choosing 20 relationships other than there were not a large number of suppliers that had significant experience working with both US and Japanese automakers.

  10. These findings are consistent with those of a market research firm, Planning Perspectives Inc., who conducted a survey of 700 US suppliers for Chrysler and Ford in 1992. This large sample survey found that US suppliers had significantly higher trust in Toyota and Honda than they did in the US automakers.

  11. There is some debate about whether or not trust can be purposefully created in exchange relationships. Sabel (1993: 1134) presents the argument as follows, “the burden of experience and reflection is that trust can be found, but never created … trust is a by-product of events which, to the extent they are planned at all, did not have the creation of trust as their goal. Seen this way, trust is one of those states, like drowsiness – … which cannot be produced directly by willing them, and hence at first blush are inaccessible to individual or collective acts of volition.” Our findings suggest that it may be possible to consciously and purposefully engage in behaviors (e.g., employ particular processes) that create trust in exchange relationships.

  12. However, when we adjust for the volume of transactions (sales) between the supplier and automaker, we find that US suppliers engage in 50% more face-to-face contact (per dollar of sales) with Japanese automakers.

  13. By and large, Japanese automakers claimed that they only made a couple of modifications to their supplier management practices to suit the US institutional environment and cultural norms. First, they claim they are “probably more patient” with their US suppliers than their Japanese suppliers with regard to the US suppliers’ rate of improvement after assistance has been offered. In short, they have lower expectations of US suppliers and are more willing to allow, and expect, mistakes (this is likely due, in part, to political pressures they have had to increase “local content” and use US suppliers). Second, they have been more willing to write legal contracts with suppliers at the beginning of the relationship (these types of more detailed legal agreements are not written in Japan). They are willing to provide more written contractual guarantees if it makes the supplier more comfortable; however, over time these more detailed contracts tend to be replaced with oral guarantees as the supplier develops a higher level of trust and comfort in dealing with the Japanese automaker.

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Acknowledgements

The Sloan Foundation and the International Motor Vehicle Program at MIT is gratefully acknowledged for funding this research.

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Authors and Affiliations

  1. Brigham Young University, Provo, USA

    Jeffrey H Dyer

  2. Seoul National University, Seoul, Korea,

    Wujin Chu

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  1. Jeffrey H Dyer
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This paper was previously published in Journal of International Business Studies (2000) 31: 259–285.

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Dyer, J., Chu, W. The determinants of trust in supplier–automaker relationships in the US, Japan, and Korea. J Int Bus Stud 42, 10–27 (2011). https://doi.org/10.1057/jibs.2010.34

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