What affect inter-firm Trust? Evidence from automaker-supplier relations

Abstract

Globalization of industries and a dramatic increase in the number and scope of international joint ventures make the study of the determinants of trust a valuable undertaking. Trust fosters a spirit of cooperation that can lower the cost of a transaction by reducing the extent of opportunism by one or more of the transacting parties, as well as the need to guard against opportunism by the other party (parties). Thus, inter-firm trust is an important factor that needs to be considered in determining the choice of an organizational form, particularly when parties in transactions have made investments in transaction specific assets. The purpose of this paper is to examine the determinants of inter-firm trust in automaker-supplier relationships in the Malaysian automobile industry. Econometric results indicate that inter-firm trust emerges when auto makers (1) have developed assistance-giving routines to help suppliers, (2) have a long relationship with supplier, and (3) maintain a continuing (repeated) exchange relationship with the supplier.