Trust in international joint venture relationships Margreet F. Boersma a , Peter J. Buckley b , Pervez N. Ghauri c, * a Price Waterhouse Coopers, Utrecht, The Netherlands b University of Leeds (CIBUL), Leeds, UK c Manchester School of Management, UMIST, PO Box 88, Manchester M60 1QD, UK Abstract A great deal of attention has been paid to the performance of international joint ventures (IJVs) and trust has been recognised as a key factor influencing it. This paper examines the emergence of trust as a process and develops a process model of trust building in IJVs, which is used to analyse four case studies. The main conclusions are the following: Whereas competence-based trust starts from public information, promissory-based trust and goodwill-based trust are individually orientated and mainly develop through direct personal interaction. Such interaction may lead to bonds of friendship between delegates. Before these bonds evolve, trust is mainly based on the perceived self-interest of the partner in the joint venture. When the bonds of friendship dominate, the main source of trust shifts towards emotional commitments. Thus, in the early stages of an IJV, promissory-based trust predominates, and as the joint venture progresses, competence-based trust emerges. Goodwill-based trust is important throughout the process. A commitment to cooperate emerges from initial self-interest. The model is capable of further development and testing. D 2002 Elsevier Science Inc. All rights reserved. Keywords: Trust; Joint ventures; Performance in joint venture 1. Introduction International joint ventures (IJVs) are frequently stated to be increasingly popular but with significant managerial dissatisfaction in their operations (Madhok, 1995a). There- fore, a great deal of attention has been paid to the perform- ance of IJVs (e.g., Contractor and Lorange, 1988; special issue of JIBS no. 5, 1996; Hyder and Ghauri 2000). Particular emphasis has been placed on the dynamic pro- cesses within IJVs, including conflict resolution strategies (Lin and Germain, 1997) and the development of trust between the partners (Parkhe, 1993b; Madhok, 1995b; Arin ˜o and Torre, 1996). This article examines the development of trust in IJVs over time. Many scholars have recognised trust as a key factor in improving the performance of IJVs (including Gabarro, 1978; Granovetter, 1985; Parkhe, 1993a; Ganesan, 1994; Ring and van de Ven, 1994; Nooteboom, 1996; Uzzi, 1997). Our approach is to formulate propositions based on transaction cost process analyses in which trust is seen as both an input and an output in various stages of devel- opment of the IJV. Trust reduces transaction costs because it ‘‘economises on the specification and monitoring of con- tracts and material incentives for co-operation’’ (Noote- boom, 1996, p. 989). Buckley and Casson (1988, p. 32) argue that the firm essence of voluntary interfirm coopera- tion lies in ‘‘coordination effected through mutual forbear- ance, which in turn becomes possible where there is reciprocal behaviour and mutual trust.’’ When trust is present, managers will find ‘‘ways by which the two parties can work out difficulties such as a power conflict, low profitability and so forth’’ (Sullivan and Peterson, 1982 in Dwyer et al., 1987, p. 23). The emergence of trust is a process. Every process has inputs and outputs. The process is likely to be recursive, not linear. However, it is useful as a first approximation to build a linear schema of the trust development process, and this we do below in developing our research propositions. The following section explains the notion of trust, its dimensions and sources ending with a formal definition. We then examine a transaction cost approach to trust, and a process model is introduced. The four IJV cases are then examined, and the model is applied to their devel- opment. The conclusion presents refinements to the initial model. 0148-2963/02/$ – see front matter D 2002 Elsevier Science Inc. All rights reserved. doi:10.1016/S0148-2963(01)00315-0 * Corresponding author. E-mail address: Pervez.Ghauri@umist.ac.uk (P.N. Ghauri). Journal of Business Research 56 (2003) 1031 – 1042