The social constitution of trust: supplier relations in Britain and Germany

Organization Studies, Summer, 1996 by Christel Lane, Reinhard Bachmann

Greatly increased intensity of competition in markets for manufactured goods and the enhanced emphasis on high quality, versatility and innovativeness of products have brought about changes in the organizational structure and strategy of industrial firms. These new goals, however, it is widely realized, cannot be achieved by isolated firms but only through the development of close and integrated relationships between manufacturing firms and their suppliers. Although it is widely recognized that trust (Lorenz 1988; Sabel 1990; Sako 1992; Loose and Sydow 1994; Pohlmann et al. 1995) plays an important role in the constitution of supplier relations, the latter remains an insufficiently clarified concept.

This article offers a systematic analysis of the concept of trust and attempts to integrate a theoretical approach with empirical research. It does not claim to present a comprehensive study of the various aspects of the constitution of inter-firm dealing since we merely focus on the social mechanism of trust and ignore other mechanisms such as power which we believe to be equally important. The intention of this article is to outline and test a new theoretical framework for a comparative cross-national study of inter-firm relations and, in doing so, to provide a deeper understanding of the nature of inter-firm relations which allows a more thorough analysis of empirical phenomena. In a subsequent paper we will widen our perspective and explore both power and trust as mechanisms which affect the nature of supplier relations within their specific institutional environment.

In its theoretical part, the present paper draws heavily on Luhmann's work on risk and trust in complex social systems. In doing so, we will focus on Luhmann's treatise on trust (1979) which reflects the pre-autopoietic stage of his theory project. We shall discuss the basic assumptions of his approach and distinguish his conceptualization of trust from concepts based on different theoretical foundations, such as Coleman's (1990) thoughts on trust rooted in the Rational Choice tradition. Luhmann's analysis is then further elaborated to become applicable to specific social situations. Here the work of Zucker (1986), who distinguishes three forms of trust emerging out of different social contexts, has been utilized. More generally, our comparative theoretical perspective will be informed by New Institutionalism within Sociology, History and Political Economy (Hall 1984, 1986; Powell and DiMaggio 1991; Thelen and Steinmo 1992).

Various considerations have led us to cover new ground in our empirical work. Most of the studies available to date focus on the automobile industry and, to a lesser extent, on the electronics industry and have conveyed a picture of rapid fundamental changes. Our research, in contrast, was undertaken in two more traditional industries experiencing a more gradual and incremental change due to greatly increased competitive pressures: the British and German mining machinery and kitchen furniture industries. It will be shown that the thesis of the Japanization of European industries (Oliver and Wilkinson 1988; Morris and Imrie 1992) makes little sense in the industrial contexts which we have studied.

Our work goes beyond the analysis of the buyer-supplier relation and focuses on the whole supply chain. Besides seeing firms as part of a supply chain, we also view them as embedded in other organizational networks and look at relations with competitors, financial institutions, trade associations and Chambers of Commerce. The comparative approach of our research and the analysis of the contrast between Britain and Germany in inter-firm linkages generates particularly valuable new insights. Thus, the focal point of this paper is the maintenance of inter-firm relations in their industrial and social context.

The empirical part of this article draws on primary data which our research team has gathered in 44 lengthy semi-structured interviews with both buyer and supplier firms in Britain and Germany, as well as on various documents made available by firms. Additional interviews have been conducted with representatives of trade associations, Chambers of Commerce, Economic Development Agencies, as well as with top managements of the British and the German coal boards. Our knowledge of national institutions and industry profiles is based on the analysis of various primary and secondary data.

Some Theoretical Considerations

Trust as a Mechanism to Reduce Risk

According to Luhmann's theory of social systems (1984b), a minimal social system is established once there is a boundary between its 'inside' and its 'outside'. The difference between the 'inside' and the 'outside' of a system is seen as a difference of selectivity. The outside world is unlimitedly complex, anything can happen at any time, whereas the 'inside' is characterized by at least some basic selections of specific system properties. For example, the number of actors may be defined and the general purpose of the system, e.g. exchanging industrial products, may be chosen.