Chapter 1
Trust in International Joint Ventures

'[T]he urgency remains on the side of encouraging and understanding trust. There is a lot of encouraging going on today. What is lacking, we want to suggest, is understanding'.

(Flores and Solomon, 1998: 224)

Introduction

The aim of the research on which this book is based was to investigate the factors that enhance or decrease interpersonal trust in international joint ventures. It is a cross-cultural study, which looks at relationships between expatriate and Russian management and staff in western-invested enterprises1 in Russia.2 The result is a snapshot of a point in time - the early stages of transition in post-communist Russia - a time when the former Soviet Union was attempting to throw off the centrally-planned economy of its past, and was setting off down the road to market reform. During the 1990s, western investors surged into this brand-new market, falling over themselves to take advantage of the enormous opportunities that were opening up, and keen to show the Russians the proper way to the creation of a fully fledged market system. This researcher documented the experiences of the early westerners, and their Russian partners, in their efforts at building a completely new economic system.

Cultural mismatches, flawed mental stereotypes, fundamentally differing assumptions, psychological vestiges of the past and present - all are combined in this account of what happens when two worlds come together in an apparently rational, market-driven, financial 'partnership'. The research poses the question: in this clash of cultures, how can trust be built? As a consequence, in addition to looking at the factors that build or decrease trust in business relationships, this book will also show how, in matters of trust, in common with so many other business areas, culture is relevant: 'cultural explanations... are useful in providing us with the subtle meanings that underlie ethics and interpretations about what is rational or irrational economic behaviour across societies' (Zakaria, 1999: 3).

The lessons of Russia's early pioneers have relevance not just from the Russian-western cross-cultural perspective, but also for anyone looking to understand the operation of trust in the international business context. No doubt many working in Russia at the present time, and elsewhere in the world in a variety of market systems, would recognise the stories recounted by the business people sharing their experiences here. Further, the findings presented here of how these two 'sides' come to trust each other need not be isolated as relevant to only one place, at one singular point in time. The findings have implications for interpersonal relationships in organisations, in all sectors, at multiple levels; they just happen to have been uncovered in a context of intense cross-cultural encounters between previously unknown entities in Russia - when the risks could not be higher, and the need for trust could not be more, and yet where the chances of building trust were often only the remotest of possibilities.

Trust Comes of Age

Trust has come to be recognised as a key factor for success in the intensely competitive and increasingly international modern business environment (Ring and Van de Ven, 1992). However, globalisation, among other things, has 'made it much more difficult to develop and preserve trust within and between organizations, as well as making it very risky to invest in trust... Uncertainty and risk are greatly enhanced in business relations across national borders where common background assumptions cannot be taken for granted' (Lane, 1998: 1-2).

Indeed, Child (1998), observing that the number of international strategic alliances has grown rapidly since the mid-1980s, and that they have now become major vehicles for foreign direct investment by international companies, comments: 'Strategic alliances depend for their very existence on the establishment of effective cooperation between the partners'. He continues: 'Cooperation within [international strategic alliances] involves mutual reliance and requires trust to succeed' (1998: 242).

Trust certainly seems to 'come of age'. Koehn had already stated of the 1990s that 'Trust may very well prove to be the buzzword' (1996:184). As early as 1985, Granovetter had been arguing for more recognition of the role of ongoing social relationships, as opposed to generalised morality or institutional arrangements, to generate trust and discourage malfeasance in economic life. Similarly, authors such as Baier (1986) put forward ideas that there should be a new approach to ethics in business, centered more on trusting relationships such as exist between and within families and friends rather than on legalistic, contractual relations. By 1998, trust had reached the status of 'the new "missing factor" that explains why some countries or regions develop rapidly and others lag behind' (Humphrey and Schmitz, 1998: 32). Today, the question of trust seems constantly up for discussion - whether in relation to the behaviour of international business people, government actions, the management of flexible workers, or information provision about 'safe' vaccinations for our children.

However, as trust increasingly becomes a watchword of our times, there are warnings that it is being oversold (Flores and Solomon, 1998: 206); in fact, Koehn entitled her article on trust 'Should we trust trust?' (1996: 184).3 Criticisms highlight the fact that discussions of the social aspects of trust, its role in the institutional environment and so on, although worthy, have difficulty pinning down hard facts: 'Economic analysis is right to be sceptical of "the idea of a disembodied notion of trust floating around somewhere in the social ether" (Kay, 1996: 256)' (Deakin and Wilkinson, 1998: 168). Trust, it is warned, should not be presented as a panacea: 'too much trust in the familiar can lead to pretty unproductive views of the world - and a dash of mistrust may reveal itself as being extraordinarily productive' (Kern, 1998: 204).

But Does Anyone Know What Trust Is?

Such concerns are only the tip of the iceberg. One of the main problems with trust is less about questions as to its legitimacy, and more about working out exactly what it is. Conceptually and methodologically, trust is a complex subject area to investigate with any degree of either rigour or consensus. Barber wrote that 'in both serious social thought and everyday discourse it is assumed that the meaning of trust, and of its many apparent synonyms, is so well known that it can be left undefined or to contextual implications' (1983: 7). It is difficult to agree with this. The problem with trust is not one of under- but rather of over-definition, to leave us with a situation of over-conceptualisation 'resulting in a confusing potpourri of definitions applied to a host of units and levels of analysis' (Shapiro, 1987: 624, cited in Hosmer, 1995: 380).

Mayer, Davis and Schoorman give a (far from exhaustive) list of the potential sources of this confusion: 'problems with the definitions of trust itself; lack of clarity in the relationship between risk and trust; confusion between trust and its antecedents and outcomes; lack of specificity of trust referents leading to confusion in levels of analysis; and a failure to consider both the trusting party and the party to be trusted' (1995: 709). And they go on, for example, to criticise Gambetta's linking of trust and cooperation for lack of clarity: 'Several terms have been used synonymously with trust, and this has obfuscated the nature of trust. Among these are cooperation, confidence and predictability' (1995: 712). When Luhmann bemoans the fact that: 'the elaboration of theoretical frameworks, one of the main sources of conceptual clarification, has been relatively neglected', and that '[t]o gain [new] insights we need further conceptual clarification' (Luhmann, 1988: 94), is he describing the source of the problem, the result of the problem, or typifying the problem itself?

How does one deal with the problem that this researcher terms 'semantic stickiness'? Does one over-define and over-conceptualise, in order to meet the demands for rigour, and yet then risk obscuring the landscape itself through an overwhelming concern to map it thoroughly? Or does one instead attempt a simple 'parsimonious' definition, that is manageable through its frugality, but which fails to cover fully the terrain, or leads to a conceptual muddying of the waters? The missionary zeal with which trust definitions are so frequently delineated one from the other results in the problem described by Zucker that: 'Recognition of the importance of trust has led to concern with defining the concept, but the definitions proposed unfortunately have little in common' (1986: 56).

Focusing on What Trust Could Be

Despite the recognition of the importance of trust, and endless debates about what_ it is, or is not, generally, in trust research, there has traditionally been much modelling but little investigating going on: 'While theoretical explorations on the link between trust and performance abound, empirical studies in this area are rare' (Sako, 1998: 88). Discussing research into trust in interpersonal relationships in business, Butler concluded that 'a useful approach to studying trust consists of defining and investigating a number of conditions (determinants) of trust' (Butler, 1991: 647). Flores and Solomon emphasise that trust in business relationships is built out of 'trivia': 'to think that trust in business is simply based on the absence of flagrant violations of trust feeds the view that trust can simply be taken for granted... we want to suggest that trust is continually under negotiation, whether explicit and articulated or not. Trust in any relationship is built out of (and destroyed by) routine frustrations, promises and commitments' (1998: 223).

In matters of investigating trust in cross-border alliances: 'The fundamental necessity for trust in strategic alliances has been recognized in the literature on the subject (eg Faulkner 1995), but it remains both theoretically and empirically underdeveloped' (Child, 1998: 242). The next chapter will review the findings of some of the wider studies of east-west enterprises conducted during the 1990s (Puffer, 1996; Barnes et al, 1997; Holden et al, 1998; Tullar, 1995; Reineke, 1995; Shekshnia, 1996) in which trust occurred as a finding, and inferences were drawn from that source. The remainder of this chapter will define the research area through a discussion of trust and culture, following this with an explication of this researcher's working definition of trust, and finishing with a description of the trust determinants that have been identified in this body of research.

The Question of Culture

The matter of culture is clearly significant in the present discussion of trust. For example, Michailova, reviewing her own data on management attitudes and organisational change in east-west ventures in Russia, observes of the interviewee responses: The argument that managerial style and practice are closely related to national culture is well known (Hofstede, 1980, 1991) and the empirical findings of the present paper confirm it. When talking about cross-cultural differences, drawing comparisons and contrasting differences were often used as the main language tools for expressing opinions' (1997: 13-14). She goes on to note: 'Different cultural encoding and decoding create significant barriers to mutual understanding between persons of different nationalities' (1997: 14). Arino et al confirm this, observing that the two main hindrances to success 'are the operational and cultural differences between the Russian and western companies, with the cultural having a key impact on the operational' (1997: 31).

The Level of Trust in a Society

The main focus of this book is on the building of trusting relationships in a cross-cultural context - specifically the east-west one in Russia. It is not on the general notion of trust in a society. However, such a perspective inevitably becomes intertwined with modern discussions of trust.

A number of authors have written on the theme of societal trust. Significant among them is Fukuyama (1995) for whom trust is 'the expectation that arises within a community of regular, honest and cooperative behavior, based on commonly shared norms, on the part of other members of that community' (1995: 26). His redefinition of trust as 'spontaneous sociability' turns trust into a social virtue that allows people to organise and spontaneously associate with each other (1995: 48). He derives from this redefinition his contention that high trust societies engender dynamic economies based on large corporations, while low trust economies base their businesses on familial ties, with the consequence that these economies are all the poorer for it. In a similar vein, Coleman (1990) and later Putnam (1993) describe 'social capital', that both facilitates the exchange of information and supports collective action. Transactions in such a society involve the provision of collective goods, examples of which include refusal to accept or pay bribes, voting, participation in voluntary organisations etc, and benefits that might comprise a functioning democracy, honest public officials and an active civil society. To be successful, the members of such societies must have confidence that their commitment is widely shared.

It is not difficult to see how or why a number of writers have applied such formulations of trust to the situation in eastern Europe as it evolved during the 1990s. In relation to cross-border alliances generally, Fukuyama's comments have relevance: 'people's capacity to institutionalise trust in the realm of work and business accounts for the industrial success in Japan and Germany. By contrast, the "missing middle", namely the absence of intermediate social groups in the area between the family and large, centralized organizations like the Church or the State, accounts for the relative economic backwardness of Latin Catholic countries (like Italy, France, and Spain) and Chinese societies' (Fukuyama, 1995: 55-56). When Vaclav Havel said, following Czechoslovakia's 'Velvet Revolution', 'we have to trust each other' (Flores and Solomon, 1998: 205), he seemed to be confirming such a perspective.

Many authors have taken up the gauntlet: 'A major problem facing the transition economies is the scarcity, or absence, of the minimal trust required to facilitate transactions. We consider it the key obstacle to the establishment of an effective market economy in these countries' (Humphrey and Schmitz, 1998: 43). Indeed, they cite the conclusions of Polish sociologist Sztompka on the pervasive lack of trust in post-communist societies that: 'most of the current problems are due to a deficiency of cultural and civilisational resources. One of the legacies of the communist system and its command economy is what he calls "civilisational incompetence". According to Sztompka, in the previous command economy, "to beat the system, to outwit the authorities, to evade public regulations, rules, laws [became] one of the widely recognised virtues" (1993: 90). In other words, Sztompka suggests that the moral norms necessary for an effective market economy have been eroded under communism' (1998: 43).

Koehn, however, has some difficulties with the foregoing formulations and redefinitions of trust, suspicious that: 'The shared norm that forms the basis of trust might be a mutual dislike of outsiders or of some other racial group' - she sums this up as 'racist cronyism' (1996: 188-189). Husted (1998: 233-234) makes a similar warning against tendencies towards cronyism, favouritism and 'personalismo' arising out of too much trust. He points out that bureaucracies were developed during the nineteenth century to curb some of the excesses of old boys' networks which were high on trust, but also high on exclusion. This has obvious echoes with discussions over the existence of networks of contacts and personal relationships that were so prevalent during the Soviet period and which remained active well into the reform process. Networks and the related perspective of cultural embeddedness are discussed next.

Cultural Embeddedness and Network Theory

The concepts of cultural embeddedness and networks often become intertwined, particularly when it comes to writings on eastern Europe. The cultural embeddedness perspective is commonly associated with Granovetter (1985), and stresses 'the role of concrete personal relations and structures (or "networks") of such relations in generating trust and discouraging malfeasance. The widespread preference for transacting with individuals of known reputation implies that few are actually content to rely on either generalized morality or institutional arrangements to guard against trouble' (1985: 490).

Under the Soviet regime, as will be shown in Chapter 2: 'Within the apparently monolithic plan... an intricate web of personal competitive contacts coordinated economic activity. Virtually every Soviet-type enterprise had an employee whose primary responsibility was to establish long-term personal relationships with other organisations to procure supplies, particularly in emergencies... It was well accepted that a successful manager had to rely on personal contacts, and must often break the law. Trust was maintained in these relationships through reputation and through perception of mutual advantage' (Hertz, 1997: 11).

The complex, informal, opaque alliances and operations arising out of the former command economies that greeted the early foreign investors in Russia clearly lend themselves to analyses via network theory and cultural embeddedness. Peng and Heath comment that: 'When the formal constraints for a market-based economy are still lacking, managers naturally resort to informal constraints to regulate transactions and seek growth because of their dominant logic in using networks and personalized exchanges' (1996: 509). In the eastern European context, 'the propensity of using such networks and personalized exchanges certainly depends on the cultural embeddedness of such a practice' (1996: 503).

Barnes et al link such activities to the 'the strong need for personal trust built on private connections in business exchanges. Western managers tend to place more value on mechanisms that expose corruption and facilitate the Western concept of justice, whereas Russian managers tend to place higher value on safeguarding and trusting one another' (1997: 544). They continue: 'The cohesive group structure found in Russian society is based on a higher-order need for safety and caution, which is nurtured by mutual trust and expectation of loyalty and commitment to your private network' (ibid). As a result, post-Soviet organisations 'settle on a network-based strategy of growth, building on personal trust and informal agreements among managers' (Peng and Heath, 1996: 492).

The question of the continued prevalence and impact - positive or negative of these former networks in eastern Europe during the reform process is an important one. Granovetter warns that although social relations are often a necessary condition for trust and trustworthy behaviour, they do not guarantee it 'and may even provide occasion and means for malfeasance and conflict on a scale larger than in their absence' (1985: 491).

While some authors see the old networks as a constraint on the reform process, perverting both its means and ends, others see them as efficiently responding to the new entrepreneurial environment: 'many existing business networks in the transition economies, grown out of former bureaucratic bargaining relationships, are not sufficiently open and trust is not sufficiently generalised to fully realise economic opportunities. In this, [the author] takes issue with some of the existing literature on business networks, which views their survival and adaptation as an efficient response to the uncertainty and imperfection of markets in the transition' (Raiser: 1999: 2). But Hertz, as noted above, leaves us in no doubt that the old networks persisted during the reform process, with serious implications for organisations that were not part of them - especially foreign investors.

The foregoing has set the broad parameters for the discussion and definition of trust to be put forward in this book. It is time now to move onto defining trust, and establishing the determinants of trust in the cross-cultural business relationship under investigation.

Setting out the Research Area

Two comments are required before examining this researcher's definition of trust. The first concerns why trust requires detailed discussion and analysis at all: 'the problem of trust would of course not arise if we were all hopelessly moral, always doing what we said we would do in the circumstances in which we said we would do it... if it was common knowledge that we were all trustworthy. A minimal non-congruence between individual and moral values is necessary for the problem of trust to be a problem' (Dasgupta, 1988: 53).

The fact is that it is not common knowledge that we are all trustworthy, even though we may consider ourselves trustworthy, we believe - and our actions rest on this belief - that this does not hold true for the rest of the world. This leads to another key observation, by Flores and Solomon that: 'The discussion of trust is shot through with what French existentialist Jean-Paul Sartre called "bad faith" (mauvaise foi), the distancing of our own actions and choices and the refusal to take responsibility for them. The not very subtle message of too much of the talk about trust today is, 'The problems isn't me/us, it's them", as if WE are perfectly willing to trust others - if they are trustworthy, that is, but, unfortunately, they are not or have not proven themselves so' (1998: 206). Gambetta illustrates this tendency using the example of traffic jams in cities. The increasing congestion of city streets, he states, is presumed to be proof of individuals' preference to travel by car. However, the truth may be very different, Gambetta posits, because: 'What is lacking is the belief that everybody else is going to cooperate, which generates the fear of being the only "sucker" around to sweat on the pedals' (1988: 217).

The second general comment is that trust, as a moral resource, is generally shown to increase through use, and be depleted through lack of use: 'Trust and other forms of social capital are particularly interesting because they are moral resources (Hirschman, 1984) that operate in a fundamentally different manner than physical capital. The supply of trust increases, rather than decreases, with use; indeed, trust can become depleted if not used' (Powell, 1996: 52). Powell goes on with an illuminating question for foreign direct investment (FDI) circumstances: 'once trust is operable, it may prove durable. But how can trust be introduced into antagonistic situations? If social norms are part of the reason for the presence of trust, how can it be manufactured?' (ibid).

This acknowledges the point made at the start of this chapter that the bases for establishing trust in the complex world of a cross-border strategic partnership will be largely absent, or at least fragile in the early stages of its development, and perhaps on an ongoing basis; therefore, for western businesses investing in Russia to succeed, the difficult process of developing trust needs to be understood and managed. This reflects Butler's view that: 'Many managers have a greater need to know what causes trust than to understand the construct itself (Butler, 1991: 659). The foregoing discussions very much indicate that if business people are less interested in learning about the construct of trust and more interested in knowing what causes it, then many theorists and researchers have failed in their task.

This book aims to go some way towards filling the 'practice' gap, taking as its area of interest relations within east-west enterprises in Russia. Butler comments on the importance of identifying 'trust's multidimensional nature. Trust has been found to be multidimensional as a construct as well as being activated and sustained by a multidimensional set of conditions' (1991: 644). He continues: 'The conditionality of trust also suggests measuring the conditions leading to trust in addition to the dimensions of the trust construct itself. Although a measure of trust dimensions could focus on a specific other and could reflect the complexity of the construct, it would be unable to pinpoint specific causes of trust or mistrust that needed attention in a given organization or relationship' (1991: 647).

This research investigates such causes of trust (or mistrust) in relationships between east-west personnel in east-west enterprises in Russia. The aim is to build theory on a usable model of trust. This investigation will take seriously Flores and Solomon's (1998) comment that trust in relationships is built out of everyday 'trivia', and embrace Butler's observation that trust is a multidimensional construct, activated and sustained by a multidimensional set of conditions - it is with identifying trust's everyday sets of conditions that this body of ffcsearch is concerned.

The Definition of Trust

This author's definition of trust follows that of Good which views trust as: 'based on an individual's theory as to how another person will perform on some future occasion, as a function of that target person's current and previous claims, either implicit or explicit' (1988: 33). This is a definition that concerns itself with expectations, and not necessarily positive expectations, so it permits one to look at the level of trust in a relationship. This definition focuses attention firmly on the fact that trust is a dynamic process, with a past, present and future, all of which interact in a relationship: 'Trust, we argue, is primarily about relationships. Of course, one can and does "trust x to do y" but rarely does such trust make sense outside of some larger frame of trust and trustworthiness and a context which includes the history and nature of the relationship between the people' (Flores and Solomon, 1998: 209). Therefore the definition will not be adopting the possible implication of Good's definition of a uni-directional dyad, rather the focus will be bi-directional.

The two key points to emerge at this stage from the foregoing paragraph are: 1. the chosen definition allows for the focus to be on the (theoretical - ie uncertain) perceptions of individuals interacting within a relationship, or by extension, groups of individuals within a relationship; 2. the relationship, and the development of trust within it, is dynamic - past, present and future interact. Good's 'implicit or explicit' signals that make up 'current and previous claims' are interpreted as permitting one to look at formal organizational structures, internal procedures etc, at the same time as the 'softer' signalling mechanisms of trust or lack of it canteen seating, socialising etc.

Trusting Behaviour is Embedded Behaviour

The Flores and Solomon quotation above makes explicit the importance of the history and nature of the relationship. The history and nature of the relationship to an extent comprises its embedded aspect. Drawing on the sociological perspectives of eg Barber (1983), Luhmann (1988), Zucker (1986), Lewis and Weigert (1985), trust is seen to arise out of 'a set of expectations shared by all those involved in an exchange. It includes both broad social rules... and legitimately activated processes... This definition takes the background of any given transaction into account, rather than simply examining the proximate terms of the exchange' (Zucker, 1986: 54).

In a cross-border situation, the history and context of the relationship is rather different than it might be in alliances, say, between Marks & Spencers and its UK contractors. One important difference is knowledge - uncertainty or lack of knowledge is central to any discussion of trust, but this is muddied in a cross-border situation; in the western-Russian strategic alliance situation, participants are generally starting from a point of zero knowledge of each other, in a situation of different cultural and social backgrounds and norms - a situation which is further complicated by the undoubted preconceptions and misconceptions each side brings to the relationship.

As Dasgupta emphasises, to exhibit any form of trusting behaviour, individuals may well 'wish to know the sort of person we are dealing with before we deal with him. But we will know it only imperfectly' (1988: 53). Or rather very imperfectly in the case of western-Russian alliances: 'We form an opinion on the basis of his background, the opportunities he has faced, the courses of action he has taken, and so forth. Our opinion is thus based partly on the theory we hold of the effect of culture, class membership, family line, and the like on a person's motivation (his disposition) and hence his behaviour' (Dasgupta, 1988: 53).

Trust and trusting behaviour is based on the history of the relationship of the alliance, but this in turn is also embedded in the cultural and institutional backgrounds of each side, in terms of, for example, their expectations of their external institutional environment, and their reactions to and perceptions of the actions and behaviours of their partners. Recalling to mind Powell's (1996) statement that social norms are part of the reason for the presence of trust, if common social norms are initially absent, or vary greatly, and trust is at least partially, and possibly to a large extent, based on such social norms, how can trust be manufactured?

This question is particularly pertinent with regard to the old Soviet 'networks' described above, which, during the 1990s at least were still active in the reform process. This 'mutually protective social umbrella' (ibid) arises out of interpersonal trust relationships at the micro level, but how such behaviours are interpreted by the western and Russian sides of the venture may well vary extensively. For example: 'Westerners generally value fairness and equal opportunity in business transactions. In contrast, Russian managers openly resort to blat4 to facilitate business exchanges' (Barnes et al: 1997: 544). These differing norms are an important contextual factor of operating in Russia that may threaten the development of trust.

Exogenous Factors and Other Typical Aspects of Trust Definitions

The informal networks of the post-Soviet environment had a significant impact at the macro level of the reform process, and during the 1990s constituted a significant contextual feature of the Russian business environment. This fact offers a good example of why exogenous factors and events are viewed in this piece of research as having an important role in the development (or impairment) of the trust relationship. In traditional definitions, these types of external variables are in a sense 'assumed away' - the external environment is generally viewed as certain and known to economic actors. The data will show that such an assumption cannot be made in Russia's emerging business environment. The same is true of some other traditional elements of trust definitions, such as reputational effects, choice of partner or exit, and credible deterrent.

Traditional definitions of trust exclude exogenous factors: 'the risk of what economists call uncertain or exogenous events, such as acts of Nature or unpredictable changes in consumer demand and prices. Trust in this context is unrelated to our concerns of possible opportunism and the violation of commitment' (Luhmann, 1988: 198). This definition, in the Russia of the 1990s, should be extended to include a whole host of exogenous factors such as the underdeveloped legal infrastructure, banking system, and consumer markets, the actions of the authorities, even the weather! Not only did these external factors give rise to genuine practical problems and difficulties, but, as stated previously, they had also to be considered in the light of the operation of the opaque networks that both gave rise to and dealt with such issues. In the Russian context of a transitional economy, such factors (whether genuine, or taken advantage of by partners to a relationship or the external authorities, or subject to informal, nontransparent lobbying by various groups of individuals) were widespread, and put a considerable strain on relationships - they should not be 'assumed away'.

There are some further traditional elements of trust definitions that rely on certain aspects of an assumed external business environment that were not in place, or that operated differently in Russia. One of these is reputation: 'The occurrence of reputational effects depends on the existence of ongoing interactions and stable social networks through which reputational information can be spread. Hence, trusting is linked to social context, and trusting behavior changes as social context changes' (Tyler and Kramer, 1996: 4). Obviously this ties in with the sociological discussions above - in Russia, western respondents would often repeat how the Russians have not even heard of Rank Xerox or the Big Five (now Big Four) accounting firms.

Westerners were working from the assumption of their reputations being well understood in the west, and that this would soon be transferred to Russia. But there is a further element here - the old Soviet networks also relied on reputational effects, but these reputations, far from being based on institutionally-based tenets such as eg adhering to or exceeding the law on health and safety, offering excellent customer service etc, arose out of interpersonal trust building activities. As Hertz stated above, it was through reputations and mutual advantage perceptions that such trust arose and was maintained. There is clearly a conflict in these ways of establishing and continuing a good reputation if westerners are expecting justice and fairness in the formal and institutional sense to govern their relationships, while Russians seek more to look after and trust each other. Trust building activities may be inhibited by differing views on these issues.

Another traditional element of trust discussions is choice of partner: 'Being able to avoid the relation is fundamental... Clearly, there being no choice, we need not invoke trust to explain our behaviour or exit' (Luhmann, 1988: 198); as Gambetta explains: 'we would hope rather than trust' (Gambetta, 1988: 219). For westerners choosing Russian partners, and vice versa, the choice is not always large, or once embarked upon easy to change - once lengthy negotiations or an investment of some kind takes place, that relationship, for better or for worse, will often stand.5

Following from this, if the relationship suffers a serious breakdown, there must be the possibility of leaving it. This ties in with the final of the traditional trust factors which the definition used here will not embrace - credible deterrent: 'the threat of punishment for errant behaviour must be credible, else the threat is no threat... the enforcement agency itself must be trustworthy: it will do what it says and only what it says' (Dasgupta, 1988: 50). As the previous paragraph states, partner choice is often limited for western organisations entering Russia, and once a partner is selected, heavy investment will take place. These two facts alone make leaving the relationship less likely, as the partnership certainly operates under conditions that are at odds with those traditionally assumed in trust definitions set in a mature market economy.

Further, the above description of deterrence presumes recourse to legal sanctions. As will be discussed at length in later chapters, the institutional environment in Russia during the 1990s was at best emerging and uncertain, and at worst subject to belligerence and political lobbying from opaque alliances. Reliance on the legal system and contracts to safeguard one's investment and provide a credible deterrent may not engender the anticipated results. Hertz, for example, describes how, in an inadequate, emerging legal system: 'Despite the use of contracts, most of the firms see personal relationships and trust as more important than ever with their suppliers and customers, and attempt, to varying extents, to preserve old relationships... Also, the familiarity of the relationships in itself provides the firms with a degree of certainty in... a very uncertain environment' (1997: 96).

The external environment, then, was an important contextual factor that both led to the emphasis on trusting business relationships and arose out of them. It cannot be 'assumed away'.

Bases for the Analysis

The definition of trust used here concerns the theories and perceptions of individuals or groups of individuals interacting within a relationship, as to how the individuals in the relationship will perform on some present or future occasion, based on the current and previous claims, either implicit or explicit of the parties to the relationship. This trust is dynamic and evolving, and embedded both in the history of the relationship, and the social norms and cultures of each side in the relationship. Not 'assumed away' in this definition are the impact and operation of external factors such as reputation, the formal and institutional environment (or lack of it), choice of partner and credible deterrent - in the Russian environment, trust has to be built both on the basis of and despite the erratic operation of these factors.6

The research problem under investigation is the development of theory on what creates or destroys trust within east-west business alliances in Russia. The dyad is that between expatriate staff seconded to such a venture and the local Russian staff. The research question is what causes and decreases trust between these two sets of people?

The researcher identified six core trust determinants that appeared to predict the absence or presence of trust in this cross-border dyad. Before presenting the framework for the data, it is helpful to provide for the reader a description of the sources in the trust literature that gave rise to those particular determinants that make up the data framework.

The Jennings and Gabarro Findings

To understand the trust model developed out of the data analysis, it is helpful to consider the trust determinants identified separately by Jennings (1973) and Gabarro (1978). Jennings (1973) and Gabarro (1978) formulated a number of determinants of trust - Jennings during interviews of executives on the subject of their advancement up the corporate ladder, Gabarro through similar interviews on the development of effective relationships between corporation presidents and their vice presidents.

Jennings identified four bases of trust:

  • Loyalty - an implicit promise not to bring harm.
  • Accessibility - being mentally open and receptive to the giving and accepting of ideas.
  • Availability - being physically present when needed.
  • Predictability - acting and making decisions consistently, in such a way as to prevent others' anxiety caused by the unexpected.

Gabarro identified nine bases of trust:

  • Integrity - honesty and moral character.
  • Motives - intentions and agenda, similar to Jennings' loyalty.
  • Consistency of behaviour - reliability, similar to Jennings' predictability.
  • Openness - levelling and expressing ideas freely, one aspect of Jennings' concept of accessibility.
  • Discreetness - keeping confidences.
  • Functional/specific competence - knowledge and skills related to a specific task.
  • Interpersonal skills - people skills required to get the job done.
  • Business sense - common sense and wisdom about how a business works.
  • Judgement - ability to make good decisions.

Certain authors have drawn on these trust determinants. For example, Butler and Cantrell (1984) conducted an experiment to rank the relative importance of five of the conditions identified by Jennings and Gabarro. They looked for downward trust of managers in their subordinates and upward trust of subordinates in their managers. For both directions, the conditions were ranked in the following order of importance:

  • Competence - technical and interpersonal skills required for one s job.
  • Integrity - honesty and truthfulness.
  • Consistency - reliability, predictability and good judgement.
  • Loyalty - having motives for protecting and making the target person look good.
  • Openness - freely sharing ideas and information.

Similarly, Ring (1996) fused the separate findings of Jennings and Gabarro to develop his fragile and resilient trust model. Fragile trust places reliance on formal and endogenous safeguards such as contracts and insurance arrangements, and exogenous recourse such as the courts (Ring, 1996: 153) to regulate business relationships. Ring foresees accessibility, availability and predictability (Jennings), and functional competence, judgement, business sense and consistency of behaviour (Gabarro) as predicting fragile trust (1996: 154). Resilient trust rests on 'a belief in the goodwill of others' (Ring: 1996: 155), and describes 'a set of expectations that A will act in a manner that reflects "persistence and fulfilment of the natural and the moral social orders" in her relations with B' (Ring, 1996: 156). Such trust will be predicted by loyalty (Jennings), and interpersonal competence, discreetness, integrity, openness and motives (Gabarro) (Ring, 1996: 157).

The Data Framework

As described above, the research identified six core determinants that appeared to increase or decrease trust in cross-border relationships in east-west ventures in Russia (how these determinants were identified from the data is described in Chapter 3). The previous section described the findings of Jennings and Gabarro, as these shed some light on the concepts that will be used to predict the absence or presence of trust in east-west business relationships. The six determinants that will be used to present the research findings are functional competence, local competence, interpersonal competence, motives, outgroup and monitoring. These are described in detail next.

Functional Competence

This is drawn from Gabarro, who describes functional/specific competence as knowledge and skills related to a specific task. This researcher extends functional competence to include two other Gabarro constructs that enrich this definition: 1. business sense he defines as common sense and wisdom about how a business works, which is a key ingredient in achieving functional competence on a daily basis; 2. judgement is the ability to make good decisions, as this researcher would argue that judgement is the exercise in practice of the other two constructs. So, functional competence becomes applying knowledge of and skills to the specific task or specialism, and the business, and exercising and displaying such skills and experience through decision making and in practice.

This determinant is further subdivided in the data findings into managerial competence and technical competence. In the cross-border exchange, westerners might be expected to bring knowledge of eg accounting, finance, law, marketing, distribution, HRM, strategy and so on - this is managerial competence. And/or they might be expected to bring technical knowledge of eg running a factory, telecoms networks, IT, oil and gas technology and equipment, and so on - their more mechanical and technical knowledge and skills would be at a premium.

Interpersonal Competence

Once again, this is a Gabarro concept - the 'people skills' required for one's job, and the 'social' skills of running a business, so that functional competence can be effectively put to use. This relies greatly on an individual's innate abilities at building social relationships, but may also be learnt. It is a skill that helps to oil the wheels of business transactions and interactions on a daily basis.

Local Competence

This refers to knowledge of local business practices, institutions, the ways things are done, prominent individuals, etc. This is a competence that local partners would hold at the outset of the business relationship, and which the western partner would be lacking - ideally it should be a strategic aim of the western partner to develop a degree of such local competence. This is a construct identified and labelled by this researcher.

Motives

This is drawn from the Gabarro and Jennings studies described above. Motives, in Gabarro's analysis, refers to intentions and agendas, but this baseline notion is extended by this researcher to embody another of his constructs - that of integrity, which he describes as honesty, moral character, and truthfulness; and this is widened to include one of Jennings's constructs - loyalty, which is an implicit promise not to bring harm, and having motives for protecting and making the target party look good. Therefore, this extended definition of motives concerns an honest intention on the part of one party in a relationship not to bring harm to, and indeed to protect and help the other party in the relationship.

In relation to the foregoing categories, Husted (1998) draws on Barber (1983:14), to make a distinction, which shows that trust includes:

  • the expectation of technically competent role performance; and
  • expectations of fiduciary obligation and responsibility, ie that some others in our social relationships have moral obligation and responsibility to demonstrate a special concern for other's interests above their own.

Husted similarly compares this with Brockner and Siegel s (1996) division between ability, which Husted equates with competent role performance, and motivation, which goes to fiduciary obligation. In the context of this researcher's trust determinants, such distinctions are mirrored in the motives and functional competence categories.

Outgroup

Characteristic-based trust (Zucker (1986)) is evident in a category that emerged more strongly in the case study data than in the interview data. This is a dimension that directly concerns matters of social similarity, social norms and the like, and recalls to mind Powell's (1996) question of how can trust be manufactured if social norms are part of the reason for the presence of trust? Similarly, Brewer (1979) sets out the ramifications of this question when he states that individuals are more likely to perceive outgroup members as dishonest, untrustworthy and uncooperative than they are to so perceive ingroup members. As will be seen, the history of the case study gave this issue a particular significance in the minds of its members.

Monitoring

It is particularly helpful, when reviewing the case study data in particular, to keep in mind Van de Ven and Walker's (1984) finding that excessive formalisation and monitoring of the terms of interorganisational relationships lead to conflict and distrust among parties. 'Monitoring' concerns the preference for a party in a relationship to closely regulate and monitor the relationship through reliance on formal processes, contracting, assumptions and behaviours.

Conclusion

The definition used in this analysis revolves around trust as a matter of expectations, influenced by the history of the relationship, differing social, ethnic and economic backgrounds, and implicit and explicit claims, in conditions of uncertainty or ignorance both of the actions of others and the operating conditions in the new market place, involving significant risk. Trust is under attack by lack of knowledge of previous reputations, exogenous factors, limited partner choice and limited deterrence options. Trust will be shown to be enhanced or depleted through evaluations of motives, functional competence, interpersonal competence, local competence, out/in-group membership and monitoring.

The next chapter will set the context of cross-cultural trust and trusting relationships in the emerging Russian market, which during the 1990s was unpredictable, highly risky and largely alien to foreign investors, but which was also a market into which such investors entered with gusto. Research evidence (eg Peng and Heath 1996, Boisot 1994) has shown that building trust in business dealings and relationships is a key factor in the success of western-invested enterprises in Russia.

1 Various terms are used throughout this book to describe the east-west business arrangement under consideration - joint ventures, western-invested strategic alliances, strategic partnerships, east-west collaborations, cooperative alliances, and many terms besides are used interchangeably. This is partially a reflection of the various business arrangements in which the respondent organisations, and therefore western organisations as a whole in Russia, were involved, and also because it makes for more interesting reading than simply calling them eg ISAs (Child (1998) - international strategic alliances), or CIORs (Ring (1996) - cooperative inter-organisational relationships). Further, the term 'east-west' is employed throughout, rather than 'west-east' or any variation thereof. This terminology is selected purely for expediency, as representing both west-east and east-west relationship flows.

2 Some precision is necessary regarding the terms used to denote nationality. The title employs the general term 'east-west strategic alliances in Russia'. 'West' is represented by the western companies and their representatives that were interviewed for the research. The respondent companies were generally either from the UK or US, and the vast majority of respondents were from the UK. The data gathered as representative of the situation in 'Russia' are drawn from interviews held in what is now known as the Russian Federation. The data predominantly come from companies involved in the main investment areas of Moscow and St Petersburg; however two interviews were held with companies with operations in Tatarstan, and the case study was located in a northern republic. Care must be taken with these findings not to generalise these to a homogenous 'whole' of the former Soviet Union, which comprised 15 republics, and of which the current Russian Federation constituted only one, albeit the most economically and politically significant, covering over three-quarters of Soviet territory and stretching the full breadth of the country from west to east. The other 14 republics, with predominantly their own ethnic populations have, since the break-up of the Soviet Union, largely worked to gain autonomy from the old 'centre'.

3 Eight years earlier, Gambetta (1988) entitled his chapter in his own anthology Trust: making and breaking cooperative relations, 'Can we trust trust?'.

4 Blat - informal connections.

5 The assumption of freedom of choice of partner is a tricky issue in this definition of trust. While there were undoubtedly a considerable number of potential partners in Russia for western organisations wishing to go into partnership, authors such as Tullar (1995) note that companies looking for partners may have to search through 80-100 local enterprises to find one suitable joint venture partner. Even then, their suitability, once one has started down the track of setting up an agreement, may be questionable, but at such a stage, western investors may be unwilling to start the process all over again. Alternatively, the decision may be made not to invest at all, as was the case with one company that agreed to be interviewed and then withdrew -the researcher coincidentally found out during the case study through an interpreter that had worked for that organisation that it had encountered so many demands for bribes, the final decision was not to invest in Russia after all. One interviewee for this research voiced his opinion that many western investors in Russian have 'in my opinion pretty dodgy partners', and are continuing in the hope 'it will all come right in the end' (expatriate deputy general director); indeed, he admits that his organisation almost made such a mistake, swapping partners at the very last minute. The implications of this for trust are that trust may not exist at all in such a situation: 'we would hope rather than trust' (Gambetta, 1988: 219).

6 Although not explicitly mentioned, risk, which is commonly a central factor in trust definitions, may be considered implicit in a characterisation which takes as its starting point individuals' (uncertain) theories about the actions of others in a cross-border collaboration carried out in conditions of low knowledge.

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