WHEN DOES TRUST MATTER TO ALLIANCE PERFORMANCE

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????WHEN DOES TRUST MATTER TO ALLIANCE
PERFORMANCE?

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• Mar.13, 2007

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Agenda
1. Introduction . ???
2. Trust and alliance performance . ???
3. Methods . ???????
4.Results .???????
5. Discussion .???
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Rekha Krishnan is an assistant professor of
international business in the Faculty of B. A. at
Simon Fraser University. She received her Ph. D.
in business at Tilburg University. She won a 2001
Best Dissertation Proposal award from the
European International Business Academy. Rekha
focuses on international alliance performance and
is particularly interested in the softer,
relational issues which can affect alliance
performance.
Xavier Martin is an expert in corporate strategy.
He researches and teaches strategies for
corporate expansion, with emphasis on
international strategy alliances and
collaborative strategy innovation and technology
strategy knowledge sharing and transfer and the
effects of these strategies on firm-level and
partnership-level competitive performance.
Niels Noorderhaven (1955) is Professor of
International Management (since 1997) and Head of
the Department of Organization Strategy (since
2003). His research focuses on (international)
cooperation in business, with a special interest
in issues of culture and trust. His teaching is
in the areas of Comparative Management,
International Business, Organization Theory, and
Strategy.
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Introduction
Behavioral Uncertainty
Uncertainty
Environmental Uncertainty
Trust
Alliance Performance
Strategic alliances are voluntary interfirm
cooperative agreements, often characterized by
inherent instability arising from uncertainty
regarding a partners future behavior and the
absence of a higher authority to ensure
compliance (Parkhe, 1993).
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Alliance Performance
Trust
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Alliance Performance
High Behavioral Uncertainty
Low Behavioral Uncertainty
Trust
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Alliance Performance
Low Environmental Uncertainty
High Environmental Uncertainty
Trust
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The explanations of some terms
A moderating variable is a second independent
variable that is included because it is believed
to have a significant contributory or contingent
effect on the originally stated IV-DV
relationship.

• Strategic Alliance
• Moderating Variable
• Control Variables
• Equity Alliance
• --Endogenous Variable
• --Estimates will be biased
• Two Stage Least Squares
• ?Equity Alliance(0,1)
• --Probit Regression
• --OLS Regression

A control variable is one whose effect on a
dependent variable may need to be nullified.
Ramanathan(2002) If simultaneity among variables
is ignored and the OLS procedure is applied to
estimate the parameters of a system Of
simultaneous equations, the estimates will be
biased and inconsistent. Furthermore, tests of
hypotheses on parameters will be invalid.
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2. Trust and alliance performance(1)

• H1. Ceteris paribus, trust is positively related
  to alliance performance.

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2. Trust and alliance performance (2-1)

• Trust, Behavioral Uncertainty, and Alliance
  Performance

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2. Trust and alliance performance (2-2)

• Trust, Behavioral Uncertainty, and Alliance
  Performance
• H2. the positive relation between trust and
  alliance performance is stronger in alliances
  with a high degree of interdependence than in
  alliance with low interdependence.
• H3. The positive relation between trust and
  alliance performance is stronger in alliances in
  which the potential for interpartner competition
  is high than in alliances in which the potential
  for interpartner competition is low

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2. Trust and alliance performance (2-3)

• Trust, Behavioral Uncertainty, and Alliance
  Performance- H2.

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2. Trust and alliance performance (2-4)

• Trust, Behavioral Uncertainty, and Alliance
  Performance- H3.

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2. Trust and alliance performance (3-1)

• Trust , Environmental Uncertainty, and Alliance
  Performance
• H 4. The positive effect of interorganizational
  trust on alliance performance is weaker when
  market instability is high than when it is low.
• H5. The positive effect of interorganizational
  trust on alliance performance is weaker when
  market unpredictability is high than when it is
  low

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2. Trust and alliance performance (3-2)

• Trust , Environmental Uncertainty, and Alliance
  Performance

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3. Methods- Data

• We thus identified a sample of 700 dyadic
  international strategic alliances operating in
  India.

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3. Methods- Data collection

• The first wave of questionnaires was sent to
  managing directors and senior executives of 700
  Indian firms with international alliances.
• The second wave .126 responded, yielding an 18
  percent response rate.

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3. Methods -Variables Measured - 1
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3. Methods -Variables Measured - 2
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3. Methods - Control Variables Measured - 1
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3. Methods - Control Variables Measured - 2
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4. Results

• Two-stage technique(Heckman,1979)

• 1st stage probit regression

• To account for the possible endogeneity of the
  choice between equity/ nonequity alliance.
• Inverse Mills Ratio(IMR)

• 2nd stage OLS regression

• Endogeneity

• Omitted variable bias

• Its likely that alliance performance depends on
  unobservable characteristics that determine
  alliance governance choices.

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4. Results

• Model

Alliance performance

Control var.
Main effects

interactions

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4. Results
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4. Results
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4. Results
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4. Results
The trust-alliance performance relationship
strengthened under behavioral uncertainty
The trust-alliance performance relationship
weakened under environmental uncertainty
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5. Discussion

• There appears to be general support for the idea
  that trust is beneficial to alliances. However,
  recent studies have suggested that the impact of
  trust on alliance performance may be contingent
  on other factors.
• The relationship between trust and alliance
  performance is moderated by the type of
  uncertainty prevailing in a particular alliance,
  with behavioral uncertainty strengthening, and
  environmental uncertainty weakening, the
  relationship between trust and performance.

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5.1 Contributions and Implications

• They extend the interorganiztional
  trust-performance literature by demonstrating
  that the type of uncertainty facing alliance
  partners conditions the relationship between
  trust and alliance performance. Specifically,
  behavioral and environmental uncertainties have
  opposite moderating effects on that relationship.
• Extant research suggests that potential
  competition and high interdependence between
  partners are likely tp hamper alliances.
• The challenges environmental uncertainty poses
  for firms are well documents.

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5.2 Limitations

• Limitations
• They collected data concerning the perspectives
  of both partners on alliances through a survey of
  the Indian partners only.
• The operationalization of their moderating
  constructs, behavioral and environmental
  uncertainty, does not preclude other sources.
• Single-informant bias is a potential shortcoming
  of their research.

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5.3 Suggestions for Future Research

• Suggestions
• Their approach to the study of trust may be
  generalized beyond interfirm alliances.
• They focus their analysis on interorganizational
  trust, which describes the aggregate relationship
  between partner firms and is the predominant form
  of trust to affect performance and satisfaction
  at an organizational level.
• Uncertainty related to appropriation of
  proprietary knowledge and complete sharing of
  information is more salient in knowledge-intensive
  alliances.
• They examined the impact of trust on alliance
  performance. Other relational mechanisms and
  norms may have similar contingent effects on
  alliance performance.

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5.4 Conclusions

• Their research provides significant insights into
  the advantages and limitations of
  interorganizational trust for strategic
  alliances.
• The type of uncertainty moderated the
  relationship between trust and alliance
  performance in such a way that the trust alliance
  performance relationship strengthened under
  behavioral uncertainty and weakened under
  environmental uncertainty.