Trust is analysed as a means to reduce uncertainty and risk in vertical inter-firm relationships. Both theoretically and with reference to empirical comparative research (Britain and Germany), it is shown that trust-based relations between buyer and supplier firms rarely evolve spontaneously on the level of individual interaction but are highly dependent on the existence of stable legal, political and social institutions.Descriptors: supplier relations, trust, neo-institutionalism, institutional embeddedness of the firm,

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This paper examines the many changes which have transformed the German system of corporate governance during the last seven odd years. It concludes that it is in the process of converging towards the Anglo-American model and that this has fundamentally affected the way strategic decisions are made in firms. Convergence is not seen as a functional necessity, nor is it viewed as inevitable. The paper offers both a theoretical exploration of institutional and system transformation and an empirical study which substantiates the theoretical position taken with evidence about recent trends in capital markets, banks, government and firms. Empirical evidence from the pharmaceutical=chemical industry is supplemented by data on firms in other sectors, including the financial sector.The theoretical examination of institutional change focuses on the notions of system logic, institutional complementarity, functional conversion and hybridisation. It examines both external sources of change and internal powerful actors who promote the process of transformation. The notions of hybridisation of the German business system, as well as claims about functional conversion and the evolution of a new complementarity between institutions, are rejected in favour of a trend towards convergence. The transformation in capital markets and the rise to dominance of the notion of shareholder value is particularly affecting large international and quoted firms, but is gradually spreading also to other parts of the economy. This transformation is affecting labour and industrial relations in negative ways, as well as posing a threat to the German production model of diversified quality production.

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The German business system has been regarded as a particularly tightly coupled system, with embeddedness of even multinational companies (MNCs) in their home base as particularly deep. A study of the impact of companies' changing internationalization, if not globalization, strategies is therefore especially suited to test competing claims about their effects on the German business system. Are we experiencing an erosion of this system, an adaptation in a largely path-dependent way, or even a greater specialization and stronger crystallization of the German business system? To investigate these questions, the paper examines a small number of German MNCs in their domestic and international context. More particularly, the work focuses on whether and how their emergent globalization activities affect the reproduction or erosion of the three institutional complexes which shape the factors of production: the financial system; the innovation system; and the industrial relations system. The paper concludes that a new type of transformation--hybridization--is emerging. It is regarded as a consequence of German companies' growing integration into a global economic system.

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