Building trust—Evidence from Vietnamese entrepreneurs

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Journal of Business Venturing 24 (2009) 165 – 182

Building trust—Evidence from Vietnamese entrepreneurs ☆ Thang V. Nguyen a,⁎, Jerman Rose b,1 b

a NEU Business School, National Economics University, 207 Giai Phong Road, Hanoi, Viet Nam College of Business and Economics, Washington State University, Pullman, WA 99164-4851, United States

Received 24 January 2007; received in revised form 28 March 2008; accepted 31 March 2008

Abstract In the context of underdeveloped market institutions, entrepreneurs in a transition economy are forced to rely on trust-based partnerships. In the absence of effective market institutions and sufficient elapsed time, these entrepreneurial firms find a great need to actively and intentionally develop trust with their partners. The current literature, however, has virtually overlooked the possibility of trust being intentionally developed in interfirm relationships. This study develops a model that links trust development strategies, trust, and interfirm collaboration, and reports an empirical test of that model in Vietnam. The results support the general thesis that trust can be intentionally developed to facilitate interfirm relationships. © 2008 Elsevier Inc. All rights reserved. Keywords: Trust; Institutional theory; Social exchange theory; Vietnam

1. Executive summary In many approaches to interfirm trust, researchers focus on a party's perception that their business partners are trustworthy. However, we know very little about the possibility that entrepreneurs can intentionally develop trust with their business partners at the inception of their relationship. To explore that possibility, we ask two questions in this paper: In the context of interfirm relationships, can trust be created? If yes, what are some strategies for trust development? We shift the question from “what contributes to an entrepreneur's trust in their business partner?” to “what can the entrepreneur do to foster trust with their business partner?” We believe this shift is important because managers can exert the greatest degree of volitional control over their own actions. We draw on institutional perspective (North, 1990; Scott, 1995) and social exchange theory (Blau, 1964) to identify four trust development strategies. We argue that trust development is a mutual learning process of the parties. Strategies to develop trust should create a context for such mutual learning. The institutional perspective suggests that institutions provide generally accepted ☆ The authors thank Rico Lam, Ngoc T.B. Le, the journal editor Philip Phan and two anonymous reviewers for their valuable comments on an earlier draft of this paper. ⁎ Corresponding author. Tel.: +84 844 869 0055. E-mail addresses: [email protected] (T.V. Nguyen), [email protected] (J. Rose). 1 Tel.: +1 509 335 5051; fax: +1 509 335 2182.

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rules and norms of behaviors. Contracting parties, by aligning to common institutions, are subjected to the ruling and monitoring of these norms. Thus, by relying on institutions, contracting parties channel each other's behavior to a more predictable and acceptable manner. This helps prevent opportunistic behavior and develops trust. Therefore we hypothesize that the use of formal and social networks (as informal institutions) in business relationships positively relates to trust between the partners. The social exchange theory, on the other hand, suggests that trust between the two parties develops through regular discharge of obligations (i.e., by reciprocating for benefits received from others) and through gradual expansion of exchanges. As a result, relationship evolves gradually, where the parties exchange benefits in both personal and business interactions. We therefore hypothesize that establishing personal rapport and sharing business information and practices positively associate with trust. We conducted both qualitative and survey research in Vietnam to address our research questions. The qualitative research provided rich data for us to determine whether trust building activities were intentionally designed to nurture trust. The survey research tests whether these trust building activities relate to higher levels of trust, that is, that they are effective. We tested the hypotheses on data collected from 146 relationships between 55 privately owned Vietnamese garment firms and their business partners. Exploratory and confirmatory factor analyses suggest that four trust development strategies (use of formal institutions, use of social networks, establishing personal rapport, and sharing business information and practices) are distinct from each other and from trust. The regression results suggest that three of the four strategies – use of social network, establishing personal rapport, and sharing business information and practices – are positively associated with trust between the partners. We also found evidence that trust positively relates to business collaboration. From a theoretical perspective, our results support the thesis that trust between firms can be actively and intentionally developed. This opens a new research avenue where entrepreneurs can be viewed as trust building agents, in addition to information-brokering agents. Researchers could also examine possible interactions between these strategies and other more given factors of trust, such as individual, organizational, and contextual characteristics. It could be useful to investigate which strategies are more effective under certain conditions, or compare preferred trust development strategies of managers in different cultures. From a practical perspective, our results give evidence that developing personal rapport, sharing business information and practices, and seeking endorsement from informal third parties increase trust. While informal third parties (in social networks) can endorse the relationship and signal similar values and beliefs between the parties, sharing business information and practices and establishing personal rapport allow the parties to directly learn about each other's goodwill. A support to a partner, whether it is financial, technical, or emotional, in an unexpected circumstance could be especially effective in gaining trust from this partner. This suggests that the entrepreneurs/ managers may need to engage in various social activities with their partners, even though some of these activities may not be their personal preferences. 2. Introduction A central issue facing transition economies is how to promote a healthy private sector, allowing private firms to capture opportunities created by the transformation processes (Nguyen, Weinstein, and Meyer, 2005; Tan, 2007). Since market institutions and infrastructures in these countries are underdeveloped, private firms must rely extensively on networking strategies and trust-based partnerships (Bruton and Rubanik, 2002; Kodithuwakku and Rosa, 2002). Trust between firms may be even more important in transition economies where property rights are not well defined and private sector legitimacy is not well developed (Boisot and Child, 1996; Guseva and Rona-Tas, 2001; Meyer and Nguyen, 2005; Peng and Heath, 1996; Smallbone and Welter, 2001). As privately owned firms are newly developed, they have neither established reputations nor the necessary history of partnering. This presents a challenge to theorizing how, in the absence of market institutions and elapsed time, managers of new ventures can develop trust in their partners. Studies on trust in interfirm relationships, however, are virtually silent on whether trust can be intentionally created, and what actions managers can take to develop trust. Some argue that trust gradually and naturally develops with ongoing business exchange (e.g., Ring and Van de Ven, 1992; Zucker, 1986). In this view, a high level of trust is a byproduct of business relationships. Others contend that trust is a product of social networks or personal relationships, which serve as preconditions for business exchanges (e.g., Granovetter, 1985; Larson, 1992; Redding, 1990). That is, a high level of trust is an antecedent, not an outcome, of business relationships. Both views imply that trust gradually develops over time and is dependent on the past relationships. The truster has been modeled as a passive party who can reach the status of high trust on the basis of given factors, such as past personal and/or business relationships with the

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trustee, or their own personality. What is overlooked is the possibility that entrepreneurs can intentionally develop trust with their business partners at the inception of their relationship. To explore that possibility, we ask two questions in this paper: In the context of interfirm relationships, can trust be created? If yes, what are some strategies for trust development? We shift the question from “what contributes to an entrepreneur's trust in their business partner?” to “what can the entrepreneur do to foster trust with their business partner?” This is an important shift because, as we argue later, an entrepreneur's actions and behaviors provide a foundation for trust. More importantly, entrepreneurs can take actions to improve stakeholders' perceptions of their businesses (Choi and Shepherd, 2005). In the absence of market institutions and elapsed time, it is in the entrepreneur's interest to initiate trusting relationships in order to mobilize resources for his/her venture. While trust development may make intuitive sense for practitioners, we are not aware of strong, theoretically grounded studies that specify how an entrepreneur intentionally develops trust with his /her business partners. To address these questions we conducted both qualitative and survey research in Vietnam. The qualitative research provided rich data for us to determine whether trust building activities were intentionally designed to nurture trust. The survey research tests whether these trust building activities relate to higher levels of trust, that is, that they are effective. We focus our analysis on the trust between the owner, or an individual manager, of the focal firm with a contact person of the partners. Our sample includes Vietnamese young and small private businesses where the owner and/or a key manager often plays a significant father figure role (Nguyen and Bryant, 2004). His or her attitude toward a business partner would account for the most important part of interfirm trust (Lechner et al., 2006). We start with the conceptual foundations for this paper and argue that the current literature of trust in interfirm relationships has not adequately explored the possibility that trust can be intentionally developed. We then apply institutional perspective and social exchange theory to develop hypotheses on four trust development strategies. Next, we present the research context and results of our qualitative research. This is followed by the method and findings of the survey research. A discussion on findings and practical implications concludes our paper. 3. Trust development in interfirm relationships Trust is defined as the willingness of a party (the truster) to be vulnerable to the actions of another party (the trustee) based on the expectation that the trustee will perform a particular action important to the truster, irrespective of the ability to monitor and control the other party (Mayer et al., 1995). Trust is a psychological state, a positive attitude toward the partner and confidence that the partner will perform. A crucial question is how this willingness or psychological state is produced, and scholars vary in their treatments of antecedents of trust. In fact, much of the debate in the literature surrounds conceptualization and antecedents of trust. Antecedents of trust can be categorized into three groups—contextual factors, past experience, and individual attributes. In the contextual group, culture and institutions are two key factors of trust. Some argue that trust between firms is influenced by societal cultures (Fukuayma, 1995; Dore, 1987). According to these authors, there are “high trust” and “low trust” societies. Firms in “high trust” cultures tend to trust their partners more than those in “low trust” cultures. Other scholars propose the level of institutional development as another macro factor of trust. On the one hand, a high level of market development fosters interfirm trust by enforcing contracts, and by providing information for and reference to the parties. Managers, relying on institutional support (court systems, certification agencies), trust their partners to fulfill contracts (Hardin, 1991; Shapiro, 1987; Zucker, 1986). The absence of institutional development pushes firms to do business with only trusted partners (Peng and Heath, 1996; Redding, 1990), thus increasing the need for interfirm trust. Trust in this view is context-dependent, and the active role of the truster is largely unaccounted for. In the second category of trust antecedents managers can trust their partners if they have positive experiences with the partners (Doney and Cannon, 1997; Lewicki and Bunker, 1995; Morgan and Hunt, 1994; Ring and Van de Ven, 1992). Most studies use static models in which trust is seen as a consequence of given factors, such as positive experience with the partner, partner size, partner reputation and expertise, firm similarity, contact person's likeability, and shared values, to name just a few (Doney and Cannon, 1997; Morgan and Hunt, 1994). In these models, the role of the truster in actively facilitating that process is not explicitly discussed. A combination of contextual factors and past experiences leads to the notion of calculation trust, i.e., managers can trust their partners to cooperate because the possibility of cooperation is high (Axelrod, 1984; Dasgupta, 1988; Hardin, 1991; Lewicki and Bunker, 1995; Williamson, 1993). Trust is thus determined by the calculative processing of signals of trustworthiness and probabilities (Child and Mollering, 2003). Trust in this view is not fundamentally different from risk

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(Williamson, 1993) and varies with the deal. The truster may influence the quantity and quality of information on which the calculations are made with a specific deal, but this does not have much influence on the calculations over future deals. Finally, trust can result from individual attributes of the truster. Studies have proposed that trust between managers of partner firms will be enhanced if contact persons have a naturally high propensity to trust (Mayer et al., 1995; Rotter, 1967) or likeability (Doney and Cannon, 1997). The truster is merely a passive party subject to his/her personality. In summary, the current extensive literature contains a large number of models that propose different foundations of trust. What is common to these models is that the truster is seen as a passive party who achieves trust with business partners on the basis of given factors, such as cultural-institutional contexts, past experience, and/or personal attributes. Some authors even argue that the very attempt to intentionally develop trust would preclude trust; that trust can only come about by the actions undertaken for other reasons (e.g., Gambetta, 1988). Several authors have challenged this idea and proposed that the truster can play a more active role in trust development (Child and Mollering, 2003; Whitener et al., 1998). However, an empirical study with strong theoretical foundations on trust building is nonexistent. We study this issue in the context of interfirm relationships and argue that business partners can actively develop trust with each other; especially where the contextual foundations for trust are weak and a history of past interactions between partners is absent. In the end, it is of the entrepreneurs' interests to take action to improve stakeholders' perceptions of (and trust in) their businesses (Choi and Shepherd, 2005). Trust, by nature, is reciprocal. Building trust is a mutual learning process between the partners. On one hand, managers can actively learn about their partners' ability, benevolence, and integrity (Mayer et al., 1995). On the other hand, the managers can also demonstrate trustworthy behaviors to the partners. Developing trust involves creating a context for mutual learning. In the East Asian context, such as in Vietnam, trust development may be confused with the concept of guanxi (or social connections) (Lovett, Simmons, and Kali, 1999). While guanxi may be related to trust development, they are distinct concepts. What guides relational exchange behaviors in guanxi are reciprocal obligation and mutual assurance (Hwang, 1987; Yang, 1994). Trust, however, is not based on obligation but upon mutual confidence in openness and honesty. In the following sections, we employ institutional perspectives and social exchange theory to propose strategies for managers to facilitate mutual learning and trust development with business partners. We also distinguish trust development strategies from guanxi practices. 4. Institutional perspective and trust development strategies Interfirm relationships are first and foremost structured by economic exchanges. Economic theories, such as agency and transaction cost theories, assume self-interest— meaning that partners strive to maximize their individual utility and that both parties seek to minimize the risks associated with the relationship (Eisenhardt, 1989; Williamson, 1985). While trust is not a central concept in these theories, it does relate to one's confidence in the absence of opportunistic behaviors from partners. Institutions play an important role in fostering that confidence. Institutions are “the rules of the game” (North, 1990), or general rules and patterns of behaviors that are engrained into social interaction (Meyer and Rowan, 1977; Powell and DiMaggio, 1991; Scott, 1995). Institutions are relatively stable sets of rules commonly accepted and followed. Institutional frameworks consist of both formal and informal dimensions (North, 1990). The formal dimension includes political rules, judicial decisions, and economic contracts. The informal constraints include socially sanctioned norms of behavior, which are embedded in cultural values and ideology (Bucar et al., 2003; Scott, 1995). Institutions reduce uncertainty in exchange by creating guidelines for behaviors. Institutions facilitate trust development by encouraging trustworthy behavior between partners in a given situation (Zucker, 1986). When two parties enter an economic exchange, they should have clear shared understandings of acceptable and unacceptable behaviors, whether these behaviors are explicitly written down in their contract or implicitly understood as social norms. They should also understand that breaking their obligations in the exchange would subject them to legal and/or social sanctions. These shared understandings, facilitated by institutions, encourage trustworthy behavior, which leads to trust between the partners (Hagen and Choe, 1998; Hardin, 1991; Shapiro, 1987; Zucker, 1986). What can a manager do to actively and intentionally develop trust with their partners? The discussion above suggests two strategies. First, the manager could use formal institutions (e.g., legal contracts, the court, or intermediary agencies) to learn about the partners' past behavior. Whether the partners have subjected themselves to the rules of formal institutions (e.g., signing written contracts), and whether they have conformed to accepted rules, signal trustworthiness. Managers could also use formal institutions as guides for current contracts with partners. In encouraging trustworthy behavior, the law remains ‘latent’ when both parties only vaguely know that there are

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sanctions for violations of agreements (Luhmann, 1979). The use of formal institutions here is to channel the parties toward acceptable behavior and prevent opportunism. If partners have to bring each other to court and sanctions need to be triggered, they have effectively failed to use institutions because the legal process is costly, time consuming and precludes future cooperation. In their study of the subcontracting relationships of a garment firm in Vietnam, Nguyen et al (2005) found that the partners rarely took each other to court. They referred to this option as the “last resort” or “ridiculous”. However, they still insisted on having written contracts for most transactions. Their conclusion was “Perhaps what the institutions are capable of doing and actually doing is less important than the partners' willingness to be exposed to third party monitoring and ruling” (Nguyen et al., 2005, p. 228). Thus, we hypothesize: H1. The extent a manager uses formal institutions for their relationships with a business partner is positively related to trust between him/her with the partner. Mangers can use social networks as informal institutions to develop trust with their partners (Coleman, 1988; Hoang and Antoncic, 2003). Firstly, social networks, such as kinship, community church, or school alumni, normally have implicit rules of acceptable behaviors. If both parties join the same network, they are subject to the same set of rules. That makes their future behavior more predictable. Social networks provide social sanctions (e.g., lose local reputation) if a party breaks an agreement (Coleman, 1988). The potential for sanctions could help prevent contracting partners from engaging in opportunistic behavior. Secondly, the other members of a network common to both parties could provide information about the partners and endorse the relationship between the partners (Granovetter, 1985; McEvily and Zaheer, 1999; Uzzi, 1997). Trust can also be transitive among members of a social network (Coleman, 1988). If two parties, new to each other, both trust a third person or friend, and their relationship is endorsed by this third person, then it is assumed that the new parties share similar sets of values resulting in a higher chance for trust with each other (Larson and Starr, 1992). Social networks foster trust by providing social sanctions for opportunistic behavior as well as opportunities to learn about the new partner. Our understanding of social networks is distinct from that of social connections (e.g., guanxi) found in much of the literature on East Asian collective cultures, such as China or Vietnam. In these countries, social evaluations from other people in the same network play a crucial role in shaping the relationship of any two parties (Hwang, 1987; Nguyen et al., 2005; Redding, 1990). The decision to do a favor for another person depends significantly on the connections of the second person and the extent these connections may affect the first person (Hwang, 1987; Redding, 1990; Yang, 1994). For example, an entrepreneur's social connections will influence the probability of acquiring resources depending on the obligations that the resource holder may have to common connections. We argue that social connections in East Asia (e.g., guanxi) are not a trust development strategy. In these studies, social connections are a way for an individual to show-off power and manipulate others' choices by doing a favor (Hwang, 1987). In this view, social connections are just a power game that involves calculations of reciprocal favors and obligations that one must pay and repay to others in the network. At best, social connections help members of the networks act benevolently toward each other. At worst, social connections are ways for manipulating favors and obligations. By definition manipulation and trust are mutually exclusive, since trust is based upon benevolence of intention. Some authors argue that guanxi (or social connections) is not complete without congruence between fulfilling obligations and producing sentiment between network members (Kipnis, 2002; Redding, 1990; Smart, 1993; Yang, 1994). However, the affective component of guanxi networks is mostly a result of partners' demographic commonality, such as family ties, school mates, or former neighbor (Farth et al., 1998). So the affective component is not open to interested parties outside of the network (Redding, 1990). The obligatory nature of guanxi and the exclusivity of membership make it different from our understanding of social networks as a trust development mechanism. We argue that trusting relationships can develop more readily in open social networks, where members can learn about each other as well as rely on accepted social rules and norms, which are accompanied by potential sanctions. Based on the above discussion, we hypothesize: H2. The extent a manager uses social networks for their relationships with a business partner is positively related to trust between him/her with the partner. 5. Social exchange theory and trust development strategies Although the role of third parties is important, direct interactions are critical in fostering trust (Nguyen et al., 2005; Ring and Van de Ven, 1992). Social exchange theory (Blau, 1964) helps explain the dynamics of such interactions.

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According to the social exchange perspective, one party voluntarily provides a benefit to another, invoking an obligation of the other party to return the favor. Over time, trust between the two parties develops through reliable performance (i.e., by reciprocating for benefits received from others) and through gradual expansion of exchanges (Blau, 1964). The benefits one provides to the other party could involve economic values or intrinsic benefits without any direct economic utility, such as social support and friendship. In fact, exchanges that have little or unclear economic value could also have a strong impact on the social aspect of the relationship (Whitener et al., 1998). Different from economic contracts, benefits are rarely specified before hand or explicitly negotiated in social exchange. Providing benefit is a voluntary choice of the partners, with no guarantee that the other party reciprocates, unlike actions in a guanxi relationship. Relationships evolve slowly, starting with the exchange of relatively low-value benefits and escalating to higher-value benefits as the parties demonstrate trustworthy behavior (Blau, 1964). In much of Asian context, social exchange theory and its accompanying norm of reciprocity is widely studied. For example, studies of guanxi in China suggested that the rule of “a favor for a favor, an attack for an attack” or “if one gives you a peach, you should requite his favor with a plum” is chiefly applied in particularistic ties (Hwang, 1987: 957). According to that norm, when a party to the ties is in trouble that demands timely help from another member, who has desired resource at his disposal, “the latter, taking into consideration the possible reciprocation that the former may give in the future, will help the distressed one to a certain degree” (Hwang, 1987: 957). In this case, the recipient thenceforth owes a favor to the benefactor and should be ready to pay back the debt of gratitude once circumstances permit. What motivates a person to do favor for another is their anticipation of repayment, albeit uncertain in time and form. We argue that the established discussion of social relationships (or guanxi) overemphasizes the exchange of social obligations and under-appreciates the development of trust. While the general consensus has been that social connections include both obligations and trust between the partners (Hwang, 1987; Kipnis, 2002; Redding, 1990; Xin and Pearce, 1996; Yang, 1994), it has never been clear how trust develops. We contend that if partners focus solely on fulfilling obligations, trust may never develop into high levels. High levels of trust imply a strong confidence in partners' benevolence, ability, and integrity (Mayer et al., 1995). In trust, fulfilling one's obligations is a demonstration of benevolence, not a plan to obtain tangible benefit. The other two elements of trust – ability and integrity – are also not demonstrated in social relationships (guanxi). At its worst, exchanging obligations can be manipulative or abusive if one partner expects the other to violate some rules or to do something against his/her will in repaying the favor. Trust, in this case, can even be eroded. Fulfilling obligations, while necessary, is not sufficient for trust development if done for the wrong reasons. For trust to develop, the partners need to actively learn about and demonstrate to each other benevolence, integrity, and ability. To demonstrate one's benevolence, repaying favors is a limited and passive strategy. One might initiate a favor, i.e., providing benefits to the partner preemptively (Whitener et al., 1998). This is an important action because to facilitate the social exchange process, someone must make the first move. Another relevant strategy is showing consideration and sensitivity for the partner's needs and interests, acting in a way that protect partner's interests, and refraining from exploiting the partners for the benefits of one's own interests (Whitener et al., 1998). To demonstrate and learn about each other's ability and integrity, communication between the partners is crucial (Cullen et al., 2000). The communication dimension not only includes frequency of interaction, but also refers to accuracy of information, openness, and explanation of one's decisions (Baron and Markman, 2003). Partners could also work together to solve problems and to develop each other's capability (Hagen and Choe, 1998). What can managers do to develop trust with their business partners? Since the benefits in social exchange can be economic or social, extrinsic or intrinsic, and the interactions could be personal and/or professional, both personal and business interactions between the two parties facilitate trust development. We identify two trust development strategies. The first is to establish personal rapport with representatives of the partners, establishing a system of personal relationships between firms. Personal rapport means interactions between actors as individuals, outside of a business context, leading to a perceived sense of personal bonding, identification, or emotional attachment. Examples include visiting each other's home, attending each other's personal significant events (birthdays, weddings or funerals), and gift giving (Nguyen et al., 2005; Redding, 1990). Outside the business context, personal interactions allow the partners to learn about each other as individuals. These activities help partners decide if they have similar values, if they can identify with each other and develop a level of emotional attachment. Personal relationships motivate partners to behave less opportunistically toward each other (Cullen et al., 2000).

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Activities leading to personal relationships are very common in Confucian cultures such as in Vietnam and China (Redding, 1990). Therefore we hypothesize: H3. The more that a manager uses personal interactions to establish personal rapport with a business partner, the stronger the trust between him/her with the partner. The second strategy – sharing business information and practices – involves intensive business interactions with high levels of communication and knowledge transfer (Cullen et al., 2000; Kidwell, Nygaard, and Silkoset, 2007; Uzzi, 1997). The more partners provide information for each other, the better they understand each other's needs, capabilities, and willingness to cooperate. Sharing new business practices (e.g., technical help) shows one's concerns for the other's needs and interests. This is especially effective in “exceptional, and therefore infrequently occurring, circumstances” (Blois, 1999, p.206), such as when the partner faces unexpected problems (Nguyen et al., 2005). Through communication and sharing, exploratory learning occurs, and trust develops. Sharing facilitates reciprocal confidence (e.g., technical help, sharing sensitive information) (Uzzi, 1997). Therefore we hypothesize: H4. The more that a manager uses methods to share information and business practices with a business partner, the stronger the trust between him/her with the partner. We also hypothesize that the higher level of personal trust between firms will enhance interfirm collaboration. This is consistent with the current literature of interfirm trust and cooperation (Clercq and Sapienza, 2006; Morgan and Hunt, 1994; Saxton, 1997; Uzzi, 1997; Zaheer et al., 1998). If this hypothesis is confirmed, it also provides an incentive for managers to pursue establishing trustful relations with their partners. Several authors, however, have cautioned that a high level of trust may lead to suboptimal economic solutions (Jeffries and Reed, 2000; Wick et al., 1999). H5. Interpersonal trust between firms is positively related to interfirm collaboration. 6. The context and qualitative research Vietnam offers a rich context for studying how entrepreneurs develop trust with their business partners. With underdeveloped market institutions and infrastructure, Vietnam is commonly regarded as a country in which economic relations are strongly dependent on trust (Nguyen et al., 2005; Scheela and Nguyen, 2001). Yet, Vietnamese culture is noted for its Confucian heritage with high collectivism and particularism (Ralston, Nguyen, and Napier, 1999; Truong, Phan, and Nguyen, 1997). In such a culture, trust is believed to be developed though cultivating personal relationships that are difficult to extend beyond a fairly strict circle of kinship or tight social networks (Redding, 1990; Truong et al., 1997). This is problematic, especially for entrepreneurs who wish to do business with new partners (Nguyen et al., 2005). The country currently is growing at a fast rate and witnessing a sharp increase in the number of registered businesses (VCCI-VNCI, 2005). Vietnamese entrepreneurs need to go beyond the tight circles of their social networks in order to capture valuable opportunities (Nguyen et al., 2005). This lends a practical significance to the degree of trust these entrepreneurs can intentionally develop with their business partners. The purpose of our qualitative study was to determine whether Vietnamese entrepreneurs intentionally designed their actions to develop and nurture trust with new partners. This qualitative study is an initial inquiry into the entrepreneurs' deliberate trust building strategies. The first author got permissions to “shadow” three entrepreneurs (Mr. L, P, and B). For periods of 2 to 3 weeks the author followed these entrepreneurs and observed how they interacted with new business partners. The “shadowing” method allowed us to collect different types of data, including observations and notes of the entrepreneurs' meetings and phone conversations with new partners, informal discussions with the entrepreneurs about the issues, and companies' internal meetings relating to new partners. The recorded observations were supplemented with more formal interviews with these entrepreneurs and their managers. In addition, we conducted three in-depth interviews with three other entrepreneurs (Mr. K, T, and Mrs. H). Please see Table 1 for a brief profile of the entrepreneurs. These interviews lasted for about 2 h each. The objective of these interviews was to document how these entrepreneurs identify, interact with, and cooperate with new business partners, and their explanations of why they chose certain ways of interactions. Detailed notes in a standardized format were kept of each interview. Two authors and one Ph.D. student (who was “blind” of the research hypotheses) independently reviewed the data (observation and interview notes), identified the challenges these entrepreneurs faced, different strategies they applied

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Table 1 Qualitative data collection Company and entrepreneur Mr. L.—founder and president VX decorative plants Co.

Business partner

Nature of the deal

Mr. N. Director, forestry Looked for cooperation research institute from the research institute in providing new plants, training the company's technicians and workers Mr. P. — owner ● Foreign customers ● Get contracts Vinh Co. — garment processing ● Domestic ● Subcontracted to these subcontractors partners Mr. B. — Founder and director ● Other organizations ● Get consulting or training VCM — a business as customers contracts management consulting firm ● Contracting experts ● Get experts to deliver services to clients Mr. K. — founder Onlinepay H., Director, a venture Looked for venture capital Co. — online payment service capital fund to the business idea Mr. T.—Director BS garment Domestic customers Gets subcontracts from company domestic garment companies Mrs. H—Director, Domestic customers Gets business contracts D. Packaging Co.

Data collection method

Time

Observations via “shadowing” the In a period of entrepreneur 3 weeks

Interviews and observation

In a period of 2 weeks

Interviews via “shadowing” the entrepreneur

3 weeks

Interviews

2h

Interviews

2h

Interviews

2h

in working with new partners, and potential pitfalls of each strategy. We then compared our analyses, discussed the differences until we agreed on the results. Table 2 summarizes the results. These entrepreneurs faced three key challenges in developing business relationships with new partners. The entrepreneurs acknowledged that they lacked “infrastructure” for trust, i.e., a developed legal infrastructure and culture of trust. “It's simple: If you cannot trust the law, you cannot work with strangers. You have to convert strangers into your friends. The problem is that we are ‘strangers’ to many important business partners.” [Mrs. H, Packaging Co.] ”I don't know why, but we do not work well with people we don't know here [Vietnam]. I studied in the US, people there seem to work with each other quite easily, even when they do not know each other before.” [Mr. K, Onlinepay Co.] One strategy to deal with this situation was to have a very detailed contract or “Term Sheet” which both parties commit to follow. Another strategy was to send a staff to the partner firm in an “on premise” supervision job. Most of the time, however, the partners used intentional trust building strategy to “convert strangers into friends”. One common strategy is to use common third parties to bridge with a new partner. For example, in order to approach the Director of a research institute for business cooperation, Mr. L had to use two layers of informal third parties introduction. Upon the first meeting, Mr. L clearly presented his firm's long-term direction and his willingness to have a “durable” cooperation with the Director and the Institute. According to Mr. L: “Researchers are very careful. I need to persuade him. I'm sure he will check on me before he agrees. But I need to show him my intention first.” Another way to demonstrate one's “intention” is to recognize the partner's personal problems and try to help when possible. Our entrepreneurs appeared to be quite sensitive to the partner's personal problems. Mrs. H suggested that “…if you can help them with their personal problems, you get closer to their trust.” On one occasion, she introduced a new business partner to a well-known doctor for treatment. Similarly, Mr. K recalled that he helped a new partner to get a “pink book” [a document that legally recognizes the ownership of a house]. Since getting a “pink book” is a troublesome and uncertain procedure, this was “greatly appreciated by the partner.” Recognizing the challenge of “low trust culture”, our entrepreneurs went against that culture by initiating trust with new partners outside their close family and social network. In addition to the challenge of “liability of smallness”, and “liability of newness”, our entrepreneurs also faced “liability of privateness.” Traditionally, private business in Vietnam was not well received by the general public. Even recently,

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Table 2 Summary of the qualitative research result Challenges

Trust building strategies

● Lack of legal support—lack of market contracting as an alternative ● Culture of “low trust” in strangers—suspicion on “one time deal” or “take and run” approach

● Third party introduction and endorsement

Examples/quotes

Potential pitfalls

Mr. L (VX landscaping Co.) used Expensive and informal third party as a bridge time consuming to approach the partner ● Explicitly show interest in long-term “We don't know them, but we need their help. cooperation early in the relationship So we visit their companies, talk about (impression) cooperation, and we trust them.” (Mr. P, Vinh Co.) ● Hand-on solving problem instead of “I like to work with them as a friend. hand-off market contracting approach I'm willing to help even with their (cooperation — novel situation) personal problems.” (Mr. K, Onlinepay Co.) ● Demonstrate benevolence to the partner by helping their business and personal problems (cooperation reinforcement) ● Liability of newness, smallness, ● Demonstrate a long-term On the first visit, Mr. L presented his strategic Manipulate the and “privateness” development plan for the business idea for the company, specified why he needed perception of help from the partner (director of a research one's capability institute), and his commitment to make it a long-term cooperation ● Demonstrate a sustainability of the “I try to invite them to visit my company. business They see what I have.” (Mrs. H, Packaging Co.) ● Demonstrate capability (cues for positive perception) ● Lack of data or story available ● Third party introduction and “Could you please persuade them that we Personal trust about the company endorsement an do the job?” (Mr. T asking his partner overrides to talk to a foreign customer) organizational trust ● Use personal record to gain “I showed them [venture capitalist] my interpersonal trust (cues for assessment) business record. They felt comfortable to continue the discussion of new business idea.” (Mr. K) ● Intensive communication and interaction

many private firms committed illegal acts, such as cheating on taxes or deserting partners. Being “trustworthy” has not been associated with private business in Vietnam. Our entrepreneurs used several strategies to cope with this challenge. First, they subtly demonstrated their capability (especially financial capability) to new partners. Having foreign venture capital, backing by reputed firms, or having a list of big clients were evidence of strong capability. Second, a long-term development plan (even if only in the form of general ideas), or a list of prospective clients were used to demonstrate the sustainability of the firm. The entrepreneurs often invite potential partners to visit their premises. Some entrepreneurs, however, may go too far in trying to influence the partner's perception of their capability. For example, Mr. T tried to make a foreign client believe that he had sufficient capacity to finish the contract on time: “I invested in used equipment. That way I can buy many sewing machines. They may be used for just another six months, but at a time, I create an image of having large shop-floors, of having everything to fulfill the client's requirement.” Another key challenge facing our entrepreneurs is that most of their firms are new. With a short history, the entrepreneurs did not have data or stories supporting their firms. Third party endorsements, personal business records, and intensive interactions were the most frequently used strategies to deal with this challenge. “I already had 15 years experience and good business track record, so I talked about that with them [venture capitalist]. They then felt comfortable working with me on my new business idea.” [Mr. K, Onlinepay Co.]

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“I play tennis. I learned that he [CEO of a client firm] plays tennis at that court. So I found way to play with him there every weekend. We became friends.” [Mr. B, Management Consulting Co.] In the absence of institutional and cultural preconditions for trust, coupled with only a short time being in business, our entrepreneurs could not rely on natural forms of trust. Waiting for these forms of trust to develop would impair their businesses. Instead, the entrepreneurs, actively and intentionally, looked for ways to facilitate trust development. In doing so, they got away from the tradition of working only with partners in their close networks; they took the intentional steps in building trust; they took the risk of getting the wrong partner; but they created value by seeking to mobilize resources and commitment from unfamiliar partners. While it is difficult to determine from this qualitative research that trust building activities related to higher levels of trust, it is clear that the entrepreneurs actively engaged in these activities. Our qualitative study strongly suggested that when trust is a scarce and critical resource, intentional trust building becomes a form of entrepreneurial act. 7. The survey research 7.1. Sample and procedure The purpose of the survey research was to examine whether trust building activities related to higher levels of trust. The sample consisted of owners or high-level managers (CEO, Deputy Director, or Head of Department) of Vietnamese private garment companies in three cities: Ha Noi, Hai Phong (north), and Ho Chi Minh City (south). According to the Vietnam Textile and Garment Association, there are about 450 private firms in the textile and garment industry, of which about 300 are garment firms. These firms employed on average 200 employees. Officials of the three cities' Company Registration Departments provided lists of 200 registered private garment companies, and helped administer the survey. Of the 200 companies, only 167 companies were actually in business at the time of the survey (Summer 2001). We asked local researchers for an introduction to the companies and for help soliciting company participation. Sixty-one company owners and managers agreed to participate for a response rate of 36.5%. We delivered the survey to the respondents and asked him/her to identify up to ten partners. We then randomly picked up to three partners and asked the respondents to answer an identical set of questions for each partner. We then came back to collect the completed surveys. 7.2. Measures Measures of trust were adapted from previous studies (e.g., Cummings and Bromiley, 1996; Zaheer et al., 1998). Measures of trust development strategies were developed specifically for this research. The questionnaire was first written in English and then translated into Vietnamese using the conventional back translation process. All of the items, whether adapted or developed, were tested for their appropriateness to the Vietnamese context. DeVellis' (1991) procedure was used to develop measures of trust and trust development strategies. All items were tested for face validity, and pre-tested with a sample of 72 Vietnamese managers in the garment industry. All reliability and validity requirements were met. In this sample of the garment companies, the items loaded on six factors. The sixth factor has only one item on trust development strategies and was dropped. The remaining five factors measure trust, and four strategies of trust development (use of formal institutions, use of social network, establishing personal rapport, and sharing business information and practices). These five factors account for 66% of the explained variance. Please see Table 3 for the exploratory factor loadings. 7.2.1. Trust According to the definition of trust by Mayer et al. (1995) that we have adopted, the measure of trust needs to reflect the respondents' positive expectation of the intentions or behavior of business partners and therefore are willing to accept vulnerability towards them. We presented a set of six items on a scale of 1 to 7 to the respondents as proxies to measure trust between them and their business partners (Please see Table 3 for the items). The assumption is that a manager who agrees strongly with these statements has positive expectations of their intentions and behavior and would accept vulnerability towards them. The six items give a reliable scale with a single factor and a Cronbach's alpha of.84.

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Table 3 Factor loading result Items

1

2

Trust (Cronbach's alpha:.84) 1. We believe that this partner keeps our best interests in mind .643 .069 2. We would feel a sense of betrayal if this partner leaves us only for economic reasons .587 .073 3. We have shared values/ beliefs with this partner's representatives .859 .088 4. Contact people of this partner cares about our problems, feelings, and concerns .808 .167 5. We feel secure in sharing business related information with the partner .651 .259 6. We feel free to share with these contact person(s) our ideas, feelings, hopes, or problems that .632 .498 may not directly relate to business Use of formal institutions (Cronbach's alpha:.72) 7. Rely on the legal system (e.g., contract law, court) to make sure this partner fulfills the − .146 .057 contracts 8. Contact intermediary agencies (e.g., bank, government statistics office, industry research − .011 −.064 office, auditing companies, quality certification agency) to learn about this partner 9. Rely intermediary agencies (e.g., bank, government statistics office, industry research office, .157 .107 auditing companies, quality certification agency) to demonstrate your reputation to this partner Use of social network (Cronbach's alpha:.83) 10. Rely on informal networks (e.g., friends) to learn about this partner .199 .104 11. Rely on informal networks (e.g., friends) to demonstrate your reputation to this partner .351 .136 12. Rely on informal networks to enforce the contracts with this partner .122 .135 Sharing business information and practices (Cronbach's alpha:.67) 13. Visit the partner's facilities .094 .241 14. Regularly communicate with the partner during the implementation of the contracts .158 .042 15. Help this partner solve problems regarding to the contracts (e.g., technical help, advanced − .001 .173 payment) 16. Rely on past experience to evaluate this partner's trustworthiness (⁎) .234 .175 Establishing personal rapport (Cronbach's alpha:.85) 17. Learn about the contact person(s) (background, habits, etc.) − .125 .562 18. When appropriate, give this contact person(s) some gifts .109 .658 19. Attend their important personal life events (e.g., wedding or funeral of their family's member) .244 .825 20. Get together with them on some holiday occasions .220 .855 21. Share with these contact person(s) some of our own personal information (e.g., .525 .650 background, personal life) Percentage of variance explained 29.5 14 Eigenvalue 6.2 2.94

3

4

6(⁎)

5

.191 .220 − .130 .134 .048 − .160 .050 − .033 .376 .056 − .098 − .205

.136 .341 .050 .179 .136 .118

.169 − .061 .158 .074 .110 − .057

.149

.773 − .216 .130

.087

.853 − .081 4.42E006 .801 − .020 − .068

− .085

.122 − .317 .052 − .088 − .118 − .047

.708 − .127 .806 − .071 .843 .199

.700 .778 .775

.019 − .022 .342 .043 − .135 .135 .083 .135 − .300

.132

.046

.427 − .014 .258 .148 .101 .017 .057 .034 .059 − .064 9.2 1.93

6.8 1.42

.023 .846 .145 .140 .095 .009 .212 6.5 1.37

.182 − .110 .273 .139 − .182 4.9 1.02

(⁎) Factor 6 and item 16 (italic) were dropped from subsequent analyses. Bold numbers are highest factor loadings of the items.

7.2.2. Trust development strategy Trust development strategies refer to activities that each party engages in to develop trust. Fourteen items on a scale of 1 to 7 measured trust development strategies. The four strategies were use of formal institutions, such as banks and legal agencies (3 items, Cronbach's alpha = .72), use of social network, such as friends or family (3 items, Cronbach's alpha = .83), sharing business information and practices (3 items, Cronbach's alpha = .67), and establishing personal rapport (5 items, Cronbach's alpha = .85). Please see Table 3 for details. 7.2.3. Interfirm collaboration We follow Gulati (1995) and Saxton (1997) and use number of completed contracts as a proxy to measure collaboration between firms. We controlled for six variables that appear to have important influences over the development of trust. These control variables were: ▪ Ownership of the partner (dummy variable for state or privately owned): Managers of state-owned and private firms likely have different objectives. Their attitude and behaviors in the relationships could be different, which influence trust development processes (Nguyen et al., 2005).

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▪ Geographic distance between headquarters of the company and the partner: This factor influences how frequently the partners interact and are exposed to each other, affecting trust building. ▪ Company size (number of the surveyed firm's employees at the time of the study): The company size influences its exposure to the public and its power in relationship. This greatly influences trust building process. ▪ Company age: The longer the company exists, the more credibility it should have and the more it is known to the public, other things equal. ▪ Partner company age: As with company age, partner company age is an indicator of success and trustworthiness. ▪ Length of the business relationship (months): Length of business relationships influence the level of trust and trust building activities. 7.3. Common method variance This study relied on data collection from a single respondent, raising the possibility of common method variance (Harrison et al., 1996). We took necessary steps to limit these effects by using multiple item constructs (Harrison et al., 1996) and eliminate items that constitute clear overlap (Podsakoff and Organ, 1986). To assess the possibility of common method variance effect, we conducted a post hoc analysis using Harman's single factor test (Podsakoff and Organ, 1986). All the variables of interest were entered into factor analysis. Six factors were extracted and account for 70.8% of explained variance. The first factor accounts for the highest proportion of explained variance, but only at 29% (See Table 3). The identification of those distinct factors, coupled with the fact that the first factor did not account for the majority of the variance, indicates that a substantial amount of common method variance does not appear to be a problem in this study (Podsakoff and Organ, 1986). We conduct confirmatory factor analysis, using structure equation modeling. The five factor model fit indices (χ2 = 352.2, df = 159, p b .001, RMSE = .09, CFI = .86) approached satisfactory level and were much better than one factor model (χ2 = 722.2, df = 169, p b .001, RMSE = .16, CFI = .49). This further confirms that common method variance, if exists, is negligible. 7.4. Descriptive results Of the sixty-one surveys collected, 55 surveys that described 146 relationships between domestic firms were usable and available for analysis. Thirty-nine of the 55 surveys were filled by the firm owners, and the remaining 16 were filled by firm senior managers. The studied companies were young and small, with an average of 5.5 years in operation and 210 employees. These statistics match with those of the whole population, suggesting that our sample was representative. We also tested non-response biases on firm age and size and found no significant difference. Partner companies were in business an average of 9 years. 7.5. Exploratory data analysis We conducted exploratory data analysis to identify outliers and to check for normality of the variables. Two variables (distance between the firm's and the partner's headquarters and firm size) were positively skewed and were transformed into logarithms. All transformed variables met the normality assumption and were used for hypotheses testing. Table 4 presents the correlation matrix of the variables. The use of formal institutions positively correlates with partner's ownership (state) (.17, p b .05), partner company's age (.22, p b .05), and negatively correlates with the use of social networks (− .31, p b .01). However, it does not correlate with trust. All other three strategies, i.e. social networks, sharing business information and practices, and establishing personal rapport, positively correlate with trust. 7.6. Hypotheses testing 7.6.1. Trust development strategies and trust We used hierarchical regressions with trust development strategies as independent variables and trust as dependent variable to test Hypotheses 1–4. The control variables were entered first (control model). Trust development strategies – use of formal institutions, use of social network, sharing business information and practices, and establishing personal rapport – were then entered in the full model. We checked R2 change from the control model to full model and the coefficient of each strategy to test our hypotheses. The VIF of independent variables in all regression models ranged

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Table 4 Correlation matrix Mean

S.D.

1

2

3

1. Partner's ownership (state) .34 .47 .33⁎⁎ 2. Geographic distance (km)a 31.99 42.71 3. Company sizea 200.56 197.88 .19⁎ .25⁎⁎ 4. Company age 5.46 3.646 .07 .01 .31⁎⁎ 5. Partner company age 8.87 6.52 .561⁎⁎ .19⁎ .24⁎⁎ 6. Length of relationship 36.31 26.7 .32⁎⁎ .26⁎⁎ .41⁎⁎ 7. Trust 4.4 1.32 − .04 −.08 −.12 8. Use of formal institutions 3.85 1.44 .17⁎ .13 −.03 9. Use of social network 3.69 1.64 − .14 −.13 −.07 10. Sharing business 5.47 1.15 .12 .14 .10 information and practices 11. Establishing personal 4.19 1.46 − .04 .10 .08 rapport 12. Collaboration 8.32 9.00 .08 .03 .28⁎⁎

4

5

6

7

.10 .25⁎⁎ .60⁎⁎ − .13 − .01 − .06 − .02 .22⁎ − .04 − .08 − .13 − .06 .13 .15 .08 − .14 .10

− .03 .25⁎⁎

8

− .09 .50⁎⁎ − .31⁎⁎ .44⁎⁎ .12

.10

.56⁎⁎ − .01

.56⁎⁎

.01

− .03

9

10

11

.18 .39⁎⁎ .44⁎⁎ − .05

.26⁎⁎ .13

⁎ p b .05. ⁎⁎ p b .01. a : lg for correlation.

from 1.23 to 2.62, suggesting that multicollinearity was not a problem (Hair et al., 1998). Table 5 summarizes the regression results. The control model was not significant and only partner ownership had negative and significant coefficient (− .313, p b .05). This suggests that managers of private firms trust state-owned partners less than other privately owned partners. When four strategies were entered, the full model became significant (F = 8.04, p b .001; Adjusted R2 = .408), and the R2 change was also significant (F of R2 change = 16.26, pb.001). Three hypothesized variables – use of social network (.378, p b .001), sharing business information and practices (.257, p b .01), establishing personal rapport (.226, p b .05) – had positive and significant coefficients with trust. Hypotheses 2, 3, and 4, therefore, were supported. The use of formal institutions did not have a significant association with trust. Hypothesis 1 was not supported. 7.6.2. Trust and collaboration We used hierarchical regressions to test the relationships between trust and collaboration. Table 6 summarizes the results. Table 5 Regression models for trust development strategies and trust (coefficients are standardized) Trust

Partner's ownership Distance (logarithm) Firm age Firm size (logarithm) Partner's age Length of the relationship Use of formal institutions Use of social network Sharing business information and practices Establishing personal rapport Adjusted R2 F for the model F for R2 change ⁎ p b .05; ⁎⁎ p b .01; ⁎⁎⁎ p b .001.

Control model

Full model

− .313⁎⁎⁎ − .025 − .085 − .070 .201 .002

− .096 − .091 − .032 − .122 .159 − .030 .008 .378⁎⁎⁎ .257⁎⁎ .226⁎ .408 8.04⁎⁎⁎ 16.26⁎⁎⁎

.032 1.56

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Table 6 Regression models for trust and collaboration (coefficients are standardized)

Partner's ownership Distance (logarithm) Firm age Firm size (logarithm) Partner's age Length of relationships (months) Trust Adjusted R2 F for the model F for R2 change

Control model

Full model

− .145 − .107 − .034 .020 .118 .565⁎⁎⁎

− .081 − .083 − .015 .027 .065 .576⁎⁎⁎ .203⁎ .325 7.82⁎⁎⁎ 5.32⁎

.294 7.87⁎⁎⁎

p b .05; ⁎⁎ p b .01; ⁎⁎⁎ p b .001. (DV: collaboration is measured by number of completed contracts).

The control model was significant (F = 7.87, p b .001; Adjusted R2 = .294). Length of the relationships positively related to number of completed contracts (.565, p b .001). None of the remaining control variables were significant. When trust was entered, the model remained significant (F = 7.82, p b .001; Adjusted R2 = .325), and the R2 change was also significant (F of R2 change = 5.32, p b .05). Trust had a positive and significant association with number of completed contracts (.203, p b .05), supporting Hypothesis 5. 8. Discussion The aim of this paper is to explore whether purposive actions by the truster, who is usually modeled as a passive party, can have a positive effect on trust. We shift the research question from “What are the antecedents of interfirm trust?” to “What can managers do to develop trust with their business partners?” This shift from truster's perception to managerial behavior is important because managers can exert the greatest degrees of volitional control over their own actions (Whitener et al., 1998). We draw on institutional perspective and social exchange theory to propose four strategies for trust development. While these strategies make intuitive sense, they have not been theoretically grounded and empirically tested in the interfirm relationship literature. We conducted two studies to address this question. A qualitative study with six entrepreneurs provided rich data that unambiguously demonstrated that the entrepreneurs actively engaged in trust building activities. The survey study, on the other hand, showed that these activities did in fact relate to higher levels of trust. Taken together, our results support the thesis that trust between firms can be actively and intentionally developed. Establishing personal rapport, sharing business information and practices, and looking for informal third party endorsements appear to be viable means of enhancing trust between firms. These intentional trust development strategies are possibilities of actions to managers. They also reflect the capability managers need to develop when working with unfamiliar business partners. These strategies require substantial investment and a considerable faith in the truster. This is a learning process where the truster takes a proactive step to demonstrate the willingness to cooperate and expect a return of the favor. This reciprocity is required for the development of trust, and in this vein, our results are in line with the well-known “Tit-forTat” strategies in the evolution of cooperation (Axelrod, 1984). Our results did not find support for the relationship between the use of formal institutions and trust. Several authors have argued that the use of formal institutions (such as contracts and court) signals distrust (Bernheim and Whinston, 1998; Ghosal and Moran, 1996). While we argued that the use of formal institutions aligns partners to commonly acceptable behavior and prevent them from opportunism, this might just be a “weak form of trust”. In addition, the under-development of market institutions in Vietnam could also contribute to this lack of support. For the formal institutions to be effective in fostering trust, they need to be trusted by the contracting parties. The lack of effective enforcement and reliability of market institutions in Vietnam may have just limited this trust. This is in contrast to the strong association between the use of social network (informal institutions) and trust. When formal institutions failed, informal institutions prevails (North, 1990; Peng and Heath, 1996). We expect that as the country progresses in its reform, the role of formal institutions in fostering interfirm trust will become more significant.

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Consistent with previous studies (e.g., Morgan and Hunt, 1994; Zaheer et al., 1998), trust is found as a positive factor of interfirm collaboration. Note that the direction of causality of this relationship is not entirely clear; not only may trust influence the number of satisfactorily completed contracts but also, vice versa, the number of satisfactorily completed contracts may be a foundation for stronger trust between firms (Ring and Van de Ven, 1992). However, the strong association between trust and collaboration performance could still be used as an incentive for managers to actively build trust with their business partners. Theoretical implications The present study makes an important contribution to the interfirm trust, social exchange, and entrepreneurship theories. First, our emphasis on managerial behavior complements the current interfirm trust literature. Instead of modeling trust as a result of given factors, we focus on what managers can do to develop trust. With this approach, trust can be developed intentionally. Trust is not only the result of past experience, but also is the goal of present and future actions. However, trust development strategies by no mean replace other factors, such as firm capability and reputation. These given factors (e.g., individual and organizational characteristics, environmental uncertainty) may limit the extent to which managerial behavior affects trust. Future research could propose additional trust development strategies and investigate possible factors that affect the effectiveness of these strategies. Second, the literature on social exchange (Blau, 1964) and guanxi (Hwang, 1987; Redding, 1990; Xin and Pearce, 1996; Yang, 1994) has focused largely on reciprocating social obligations as a mechanism of trust development. We have argued in this paper that reciprocating social obligations, while necessary, is not sufficient for trust to develop. Sufficiency appears to depend on the partners' willingness and ability to demonstrate their competencies and integrity to each other. In other words, partners need to go beyond reciprocating social obligations into learning process in their exchanges. Our results suggest that, besides reciprocating obligations, partners did actively learn about each other and that their learning significantly related to their trust. Future research could test the moderating effect of partners' motives (fulfilling obligations vs. learning about the partners) on the relationship between doing favors (e.g., gift giving) and trust between these partners. Third, our study contributes to the literature of social networks and entrepreneurship. Although the role of networks has been extensively studied in the entrepreneurship literature (Hoang and Antoncic 2003; Larson 1992; Redding, 1990; Singh, 2000), most studies have focused on entrepreneurs as information-brokering agents. In these studies, entrepreneurs who are more connected and positioned in central positions of networks rich of structural holes could play a brokering role for others. These information-brokering entrepreneurs, as argued, are more likely to recognize opportunities. Our study suggests another way social networks could be beneficial for entrepreneurs. As the results showed managers/entrepreneurs deliberately engaging in trust building activities, our entrepreneurs could also be viewed as trust building agents. Certain opportunities contain high levels of uncertainty (Knight, 1921). Under high uncertainty, high levels of trust allow actors to rely on each other, share information, and commit resources for realizing the opportunities (Nguyen et al., 2005; Redding, 1990; Uzzi 1997). Entrepreneurs who actively and competently build trust with related stakeholders would more likely to be able to realize such opportunities (Baron and Markman, 2003). Based on this discussion, we make a prediction that while information-brokering entrepreneurs have advantages in opportunity recognition, trust building entrepreneurs have advantages in opportunity realization. We also propose that entrepreneurs who are active in initiating trust-like behavior and in learning about new partners' benevolence, integrity, and ability would outperform others who rely largely on their known partners. In this respect, the ability to actively build trust could be seen as another form of entrepreneurial capital (Erikson, 2002). Practical implications The notion of intentional and active trust development is likely to be particularly important in such environments as contemporary Vietnam, where institutions and infrastructure conducive to trust has not been well developed (North, 1990). In its long history of wars and Confucian heritage, Vietnam has never developed the institutions of a market economy (Truong et al., 1997). Trust in institutions is disrupted, and thus business partners need to develop trust in each other as a substitution. Perhaps with this heritage, managers in Vietnam not only are forced to be proactive in building trust with their partners, but also inherit these skills from their preceding generations. Our paper recommends specific action for managers/entrepreneurs in building and sustaining trust. Managers can actively and intentionally develop trust with their new business partners, instead of just limiting themselves within their tight social network. In the Asian context this means reaching beyond the guanxi network to broader more open social networks. This also means that managers should go beyond reciprocating obligations to learning about each other in

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order to build trust. Our results give evidence that developing personal rapport, sharing business information and practices, and seeking endorsement from informal third parties increase trust. While informal third parties (in social networks) can endorse the relationship and signal similar values and beliefs between the parties, sharing business information and practices and establishing personal rapport allow the parties to directly learn about each other's goodwill. Providing support to a partner, whether it is financial, technical, or emotional, in an unexpected circumstance could be especially effective in gaining trust from this partner. As Nguyen et al. (2005) noted, a step in demonstrating one's goodwill can be quite powerful in gaining trust. For policy makers, it does appear that market transactions can happen without strong institutions. An important consequence of this trust-based model is that business relationships are often embedded and low in number. Gaining new business partners is a costly process, implying a slow market expansion and development at both organizational and societal levels. Vietnamese policy makers should strengthen their efforts in building effective institutions because these efforts will facilitate business transactions on a large scale, gradually reducing the need for a high level of trust between transacting partners. Vietnam is not unique in this respect, and these issues are probably apparent in numerous other developing and transition economies. If so, there may be scope for entrepreneurs and policy makers in these countries to learn from our research findings. The development of trust has particular relevance for entrepreneurs in transition economies. All entrepreneurial firms face extreme uncertainty and relative resource constraints. This limits their ability to develop, grow, and survive through expansion, raising the importance of their ability to establish trust-based networks. 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