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Sri Zaheer
Strategic Management
Aks Zaheer
Strategic Management
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When AT&T's
joint telecommunications venture with China got up and running in
2002, company officials figured it would be the start of a broad
market entry into China. But because of limits on the entrance of
foreign companies into the country, AT&T is still waiting for
its big break four years later. The company's efforts in India have
been equally difficult, although AT&T has enjoyed a 10-year
partnership with Indian-owned VSNL and the market appears to be
opening to foreign companies.
According to new research by Carlson School of Management
professors Sri Zaheer and Aks Zaheer, successful international joint
ventures have just as much to do with great trust as they do with
sound strategy. "From a strategic standpoint, partnerships work
well if one company has a great product and the other company has
great distribution channels for it," says Sri Zaheer, Carlson School
Professor of Strategic Management and Organization and chair of
the department. "From a social standpoint, if the two companies
are located in countries where there are different expectations
about trust, there can be problems. This is often true for U.S.
joint ventures with firms in India or China, for example."
The role of trust
In their paper, "Trust Across Borders," published in the January
2006 issue of The Journal of International Business Studies, the
Zaheers examine the role of trust by looking at the institutional
contexts for trust. "In the United States we have a high sense of
trust, and we have institutions that make it easy for us to do business
with strangers—legal, political, and social systems that define
what we can and cannot do," says Aks Zaheer, the Curtis L. Carlson
Professor of Strategic Management and Organization. "Italy, on the
other hand, has a low institutional trust context. They typically
make their business decisions based on the strong relationships
they have built with potential business partners. They are more
likely to do business based on a handshake than a written contract."
Therein lies the problem. Companies that enter into multinational
ventures would be wise to learn about the institutional and cultural
embeddedness of trust in different countries, says Sri Zaheer. "Businesspeople
in the United States don't generally like to spend a lot of time
getting to know each other before getting down to business; whereas,
businesspeople in Italy or India expect that significant amounts
of time will be spent developing relationships with the businesspeople
and their families," she says.
Understanding trust differences
What happens when firms from countries with high levels of
institutional trust engage in international joint ventures with
firms from countries with low levels of institutional trust? According
to the Zaheers, it depends on how mutually interdependent the firms
will be.
If a U.S.-based company wants to enter into a joint venture
with an India-based company, and the joint operations were to be
located in India, it would need to invest heavily in relationship
building, Aks Zaheer says. "This is where the AT&T joint venture
with VSNL fits in," he said. "If AT&T did not do this trust
building, the India-based company would seek to overinvest in relationship
building, which might not go down well with its U.S. partner. At
the extreme, the Indian company would be able to dissolve the venture
and go it alone more easily, because it would have built the necessary
relationships with customers and suppliers," Aks Zaheer says.
Although partnerships between companies from countries that
both have high or low levels of institutional trust are ideal, these
relationships are not without their problems. "In partnerships between
countries where institutional trust is high in both, the parties
involved may not take the time to build the relationships or monitoring
systems that are important for generating high performance," Aks
Zaheer explains. "If both parties come from low institutional trust
contexts and their interdependence is low, they may overinvest in
relationship building and in monitoring and governance, which could
lead to lower performance."
Resolving trust differences
What is the answer to resolving trust differences between
partners? "Be aware of the cultural differences that exist between
countries regarding trust," Sri Zaheer says, "and think about the
processes you may need to invest in to compensate for the lack of
trust. Finally, approach relationship building in partnerships bearing
in mind the institutional trust context of the country in which
your business is located."
Reprinted with permission from the May 2006 edition of Insights,
a publication of the Carlson School of Management.
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