Trust and ISA performance in emerging markets in South East Europe

Abstract

In this study we explore the critical antecedents of trust in International Strategic Alliances (ISAs). Additionally, we examine the impact of the foreign partner’s trust towards the local partner on ISA performance. Our theoretical development is based on elements drawn from Social Exchange Theory and Transaction Cost Theory. Both theoretical and analytical triangulation strategies are incorporated into the research design in order to better understand the complexity of trust and ISA performance. We empirically examine 171 Greek firms with ISA participation. The results show the positive impact of (a) the favourable local partner reputation, (b) effective communication with the local partner, and (c) the negative impact of foreign partner’s perceived risk of local partner’s opportunistic behaviour, on the degree of trust in ISAs. We also confirm prior work and show the positive impact of the foreign partner’s trust on ISA performance. Furthermore, we investigate the moderating role of environmental hostility in the local market on the impact of the degree of foreign partner’s trust on ISA performance. Additionally, we discuss the strategic implications of the results for managers of transnational corporations and practitioners and provide suggestions for further research.