During the last decade, a major trend is the increased globalization that has occurred in the business world. We can see a tremendous growing trend toward globalization through the establishment of international strategic alliances (ISA), joint venture, licensing, outsourcing and so on to gain competitive advantages while entering into new markets, particularly into the new emerging market such as Asia Pacific.
Therefore, an inter-firm relationship that established through all kind of these strategic alliances is viewed as a strategic mechanism to improve a firm's competitive advantage. This change in orientation from competition to cooperation in inter-firm relationships is rationalized according to the transaction-cost economics perspective (Williamson 1975, 1985).
However, as more businesses engage in globalization through international strategic alliances, many problems always arise when firms engage in the inter-firm relationships since risks of opportunism are inherent in every transaction. Therefore, the selection of a control mode is a critical issue in managing an inter-firm relationship and the forms of proper control modes are implemented according to the type of interaction, the type of interdependence and the type of collaboration.
Through the governance control theory, contract is always been used to act as a control mechanism or mode of control to manage these problems and their inter-firm relationships. However, always, the costs of negotiating, monitoring, and enforcing a contract will be incurred and called transaction cost (Williamson 1975, 1985).
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Contrary to the majority of the literature on contract enforcement that has focused on the use of formal, legally enforceable contacts to minimize this opportunism possibility;
Macaulay (1963) has showed it empirically that legal enforcement on formal contracts only play a minor role in actual business agreements and limited role in inter-firm relationships.
Therefore, concurrent with the fast growing interest in trust as a valuable contributor to many forms of exchange, the influence of trust (informal mechanisms) as a moderating variable on formal contracts or contractual complexity is an issue of considerable debate. Increasingly, many researchers from various management disciplines urging “trust” play an even stronger role in improving the inter-firm relationships. They credit trust with lowering transaction costs in more uncertain environment (Dore, 1983;
Noordewier, John and Nevin, 1990) and thus, providing firms with a source of competitive advantages (Barney & Hansen, 1994) through the alliances as mentioned in the early part.
On top of that, trust also plays a vital role in facilitating inter-firm relationships to create long-term relationship between firms (Ganesan, 1994; Ring and Van de Ven, 1992) as well as enhancing the inter-firm performance. Therefore, trust is an important component in achieving a successful strategic alliance (Browning, Beyer, & Shetler, 1995; Gulati, 1995).
Concerning about the international alliances, this type of globalized economic activities is a relatively recent phenomenon in many Southeast Asian countries and the Overseas Chinese in the region with their economic power have been attracting attention from politicians, scholars, and observers alike.
According to The World Bank estimation, the combined economic output of the
‘Overseas Chinese’ was about US$400 billion in 1991 and US$600 billion by 1996 (Weidenbaum and Hughes, 1996). Therefore, the strongest overseas Chinese have huge conglomerates with global reach and the Overseas Chinese are increasingly the main event in Asian business today (Kraar, 1993).
However, the trust building process is complex and multidimensional. For example, although trust may be built in various forms of way but how trust is established largely depend upon the societal norms and values that guide people's behavior and beliefs (Hofstede, 1980). Concerning the above, in this study, the origin of my background has drawn my interest to conduct the research within the overseas Chinese in Malaysia- one of the most well developed country in Southeast Asia.
We choose to study the sources and consequences of trust in the commercial sector of the ethnic-Chinese community in Malaysia because, in conjunction with foreign interests, the Malaysian Chinese has completely controlled the country's economy and well known for their active domestic and cross-border business practices. In response to changes in industrial structure and organizational structure brought on by the tremendous growth of globalization, the management strategies of Malaysian Chinese businesses have also adapted to the new, dynamic environment.
For instances, from petty traders and emigrant workers in the early half of the twentieth century, the ‘Overseas Chinese’ and their business firms have emerged as one of the most important economic forces in the Southeast Asian countries. Therefore, we firmly believe that in the very near future, Malaysian Chinese businesses will continue to develop,
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and a great number of these businesses will rise as major global players and become increasingly open in international transactions and alliances.
On top of that, not only the global dynamic growth but also the internal national forces have created a strong force prompting the internationalization of established ethnic Chinese business firms as well as shaping the significant transformations of Chinese business in Malaysia.
As we know, among the Southeast Asia countries, Malaysia is the only multi-ethnic community that formed upon three significant multi-ethnical groups; consist of Malaysian Chinese, Indian and the native group (Malay) who make up 60%1 of the population. The multi-ethnic setting communities coexist in relative harmony, but the wealth gap among them is grave, as the Malaysian Chinese have traditionally dominated the Malaysian economy.
As of 2007, they constitute about a quarter of the Malaysian population, but hold 40%2 of the economy. As a result, with the advent of affirmative action policies by the Malaysian government to protect the rights of ethnic Malays, Malaysian Chinese’s shares has eroded somewhat. Still, they make up the majority of the middle and upper income classes.
We acknowledge that developing trust is a matter worth discussed, particularly in a condition where Malaysian Chinese businesses are facing policy and social constraints because of the ethnic nature.
1For this information, I referred to “Malaysia-wealth gap along ethnic lines” by An Hodgson, published on 16 April 2007, at Euromonitor International: http://www.euromonitor.com/
2 Same as above.
Therefore, in light of the increasing number of more firms establishing alliances while entering into Malaysia or vice-versa, the importance of trust in the international alliances suggests a need for us to examine how nationality and ethnicity play a role and impact on the trust building process as well as the consequences of the trust in Malaysian Chinese business context. We attempt to explore how the sources and consequences of trust differ among International Transacting parties of various nationalities and within-Malaysia ethnic groups.
Inter-country as well as inter-ethnic level of analysis will be conducted to provide some insights. We believe that in such a sophisticated environment, each ethnical group may result different norms and values and to decide who to trust may diverse significantly.
Despite the large number of trust related studies, drawing on theories from several disciplines we develop a framework that identifies and describes four trust building processes or so called the sources of trust that help explain how trust develops in Malaysian Chinese’s business contexts. In furtherance, we include a series of consequences of trust and discuss the linkage of both sources and consequences of trust. We argue that the consequence of trust varies according to its underlying contingency variables –sources of trust.
This paper is organized into three major sections. The next section discusses the literature of trust building processes and its consequences. The second section of literature examines the changing dynamics of Chinese business in Malaysia and discusses the changing global and national contexts, which prompt the internationalization of these business firms. The third section provide a detailed research framework of this study and
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the penultimate section analyses the processes of how Malaysian Chinese businessmen build the trust at the both inter-country and inter-ethnic level. Thereafter, to explore the linkage among the sources of trust to the contexts of the consequences of trust.
In sum, through this empirical research, we would like to determine the following questions:-
i. The perceptions of the concept of trust in Malaysian Chinese’s economic behavior and how trust developed from the perspective of both cross-national and ethnicity view in one inter-firm relationship. Was there any difference in the basis of trust between countries and ethnical group which causing the trust building process differ significantly among the parties, is it inter-country or inter-ethnic discrimination?
ii. Are those sources of trust related significantly to the consequences of trust (behavior of the trust) and to examine how strong the sources of trust influence the consequences.