Trust, Contract and Relationship Development

Abstract

This article contributes to the debate on the relation between trust and control in the management of inter-organizational relations. More specifically, we focus on the question how trust and formal contract are related. While there have been studies on whether trust and contract are substitutes or complements, they offer little insight into the dynamic interaction between the two. They fail to answer, first, whether contract precedes trust or follows it, in other words, what causal relationship exists between the concepts; second, how and why trust and contract can substitute or complement each other; and third, how the various combinations of trust and contract affect a relationship’s development and outcome. In search of answers, we conducted longitudinal case studies to reveal the relationship between trust, contract and relationship outcome in complex inter-firm relationships. We find trust and contract to be both complements and substitutes and find that a close study of a contract’s content offers alternative insight into the presence and use of contracts in inter-firm relationships.

Safeguarding SMEs dynamic capabilities in technology innovative SME-large company partnerships in South Africa

“…Formal and informal safeguards combined, which is our variable 'total safeguards', seem to prevent the unintentional flow of knowledge embodied in internal and external capabilities to the larger partner. Moreover, there is a positive impact of the combination of external capabilities and informal safeguards, which emphasizes the importance of trust, goodwill, and interaction, thus of social control, in inter-organizational relationships and networks (Klein Woolthuis et al, 2005) as important factors for partnership success. Lastly, the combination of strategic capabilities and formal safeguards turned out to be of importance.…”

Social capital, institutions and trust

“…While social capital may enhance control and trust, the two are not exclusive. Trust and control may both substitute and complement each other (Klein Woolthuis et al 2005). This is related to Hirschman's (1970) notion of 'voice and exit'.…”

“…For example, legal contracts and personal trust may replace but may also complement each other (Möllering 2005, Klein Woolthuis et al 2005. The question then is how social capital, trust and institutions are related.…”

Contract functions in service exchange governance: evidence from logistics outsourcing

“…This is intended to protect parties against potential opportunism and financial and operational uncertainties (Kern and Willcocks 2000;Williamson 1985). Contracts include several provisions and clauses that serve as legal and economic safeguards, such as the assignment of property rights and decision control rights to manage externalities, or to protect parties with low negotiating power (Klein-Woolthuis et al 2005;Adegbesan and Higgins 2011). Early termination rights allow for contract exit and help combat potential moral hazard .…”

“…Collectively this research stream remains divided over the role of formal contracts in logistics outsourcing governance reflecting also trends in the broader governance literature (Cao and Lumineau 2015;Vandaele et al 2007;Klein-Woolthuis, Hillebrand, and Nooteboom 2005). Detailed contracts are either perceived as signals of lack of trust (Lambert et al 1999), or complements to trust, commitment, flexibility and relational norms to ensure exchange effectiveness (Hofenk et al 2011;Boyson et al 1999).…”