The development of trust in cross-border
bank-firm relationships
Written by: Ran Liao
Student No. 1659723
Double Degree Program: International Financial Management
Supervisor: Dr. P.E. Kamminga (Assistant Professor)
Faculty of Economics and Business
University of Groningen
Abstract
Cross-border bank-firm relationships are characterized by information exchange, financial exchange, social exchange and trust between two parties from two different cultures. Research has identified several factors that impact the development of trust in bank-firm relationships, mainly from one country or same culture. However, less is known about how banks develop relationships with their international clients, which is influenced by the different culture contexts of banks and firms respectively. To analyze the development of trust in these cross-border relationships, interviews were conducted with two banks, one from the Netherlands, and the other from USA. The findings demonstrate the importance of building trust and the influence of culture on bank-firm relationships.
Contents
1. Introduction...- 3 -
2. Theoretical Framework ...- 8 -
2.1 Trust...- 8 -
2.2 Development of Trust in bank-firm relationships ...- 9 -
2.3.1 Contact stage: ...- 11 -
2.3.2 Contract stage:...- 12 -
2.3.3 Execution stage: ...- 18 -
2.3 Culture and its influence on development of trust ...- 19 -
2.4 Conceptual Model ...- 24 -
3. Methodology...- 26 -
4. Findings and results ...- 29 -
4.1 Contact Stage ...- 30 -
4.2 Contract Stage ...- 31 -
4.3 Execution stage ...- 36 -
5. Discussion...- 38 -
6. Managerial implication ...- 42 -
1. Introduction
As the 21st century begins to unfold, the globalization effect has made traditional firms with national orientation look outside their national borders. This growth in cross-border activities of non-financial companies has spurred greater demands for institutions that can provide financial services across borders. Gradual removal of barriers to international capital flows in most countries, jointly with a general relaxation of barriers to entry has led to an important increase in foreign banking activity. At the same time, we are seeing an increase in the number of competitors for each customer. Technology-enabled improvements and a desire to improve earning capability have led many banks to enter new markets (global and national) resulting in increased competition in local markets. For example, European companies are
increasingly turning to non-EU banks over domestic players when selecting their lead bank. In 2003, non-EU banks held only 39 percent of the principal banking
relationships with Europe’s largest companies. That number surged to 48 percent in 2004.
Financial services are at the heart of the global economy and offer major challenges for the conduct of service management research in the global economy. These service management researches should, in addition to addressing economic issues, focus inevitably on cross-cultural and are social in nature. Particularly, commercial banking is experiencing globalization and facing increased complexity of societies,
organizations and individuals. In this sector, contextual differences are important with regard to both the theory and practice of management. And the knowledge of bank-firm relationships in different countries is indispensable for management in a global economy. Hence, more attention should be paid to explaining business performance, not only by micro- and macro-economic factors, but also by integrating variables related to national character or culture, organizational culture and the individual personality of service personnel and clients.
term of the interactions between two parties. Banks more than other services should see themselves as partners with their corporate clients. This concept of partnership and interaction in the case of the banking industry cannot be perceived by other services (e.g. a restaurant or an airline). Both partners should actively participate in an interaction process. It is assumed that the relationship between banks and most firms is often close and long-term, involving a complex pattern of interaction (Zineldin, 1995). In the later 1980th, banking industry has seen the moving from selling product concepts to the relationship marketing concepts based on trust with partners which may require changes in the attitudes of every level of the bank staff. However, languages barriers and cultural differences may, for instance, prevent or complicate long-term relationships. Thus, the bank management must create environments that focus on developing relationships that turn corporate customers into long-term clients whose specific needs are satisfied effectively.
Relationship marketing, as defined by Grӧnroos (1996, p10), is the process of
attracting, maintaining and enhancing relationships with customers, and other partners at a profit. Social exchange theory provides the basic theory to support relationship marketing and establishes the connection between trust and long-term relationships (Blau, 1960). As studied by Morgan and Hunt (1994), the presence of trust in
relationships is essential to successful relationship marketing. Trust is crucial because they encourage participants to work at preserving relationship investments by
cooperating with exchange partners, resist attractive short-term alternative for the expected long-term benefits of staying with existing partners, and make participant consider prudently before implementing potentially high-risk actions because of the belief that their partners will not act opportunistically. Therefore, trust can produce outcomes that promote efficiency, productivity, and effectiveness. In the services marketing area, Berry (1995) contends that trust is the single most powerful
2006), research has not explicitly considered the role of culture in a cross-border context. For example, Doney et al. (1998) theorized how specific national cultural norms and values relate to the creation of trust. The authors note that in that paper, they do not consider the development of trust between parties coming from different cultures. Since one aspects of the internationalization process faced by multinational firms is the ability of them to develop and maintain business relationships and business networks within a cross-cultural context, cultural understanding is indicated as a key issue in the development of cross-cultural relationships and one of the major issues relating to trust. Thus, it is important to study how culture differences may affect relationship building and trust formation between two parties from different cultures. Since banks are more experienced on handling with international business with firms from various cultures than firms are, it would be much more convenient to discover the influence of culture on those cross-border bank-firm relationships from banks’ perspective. In recent studies, the investigation of the impact of culture within relationships is being more common. Some researchers have turned to look to cultural differences in the levels of trust across societies. Huff and Kelley (2003) show, in a seven-nation study, that a higher level of propensity to trust, and higher external trust (the trust an organization has for external partners such as customers, suppliers and joint venture partners), exists in business relations in the US than in Asia. In general terms, it is clear that national culture powerfully influences trust.
After above discussion, the main research question is generated:
From bank’s point of view, how is trust developed in cross-border
bank-firm relationships and how does culture influence this trust
formation process?
In order to answer these two main research questions, the literatures regarding to trust formation and culture influence were reviewed and studied, inspiring the building-up of my theoretical framework. After the development of my model, three interviews with front-line managers from one Dutch multinational bank and one US
2. Theoretical Framework
In the following part, the essence of trust will be firstly stated and various kinds of trust will be introduced. In order to better explain the importance of trust in bank-firm relationships and how trust is established, three bank-firm relationship development stages will be shown. In each stage, I will give more detail on the building up process of trust and relevant variables to trust will be discuss. After that, culture will be introduced in management context. The influence of culture on trust development process will be argued and Hofstede’s culture dimensions will be described. At last, the whole picture of trust formation in cross-border bank-firm relationships can be clearly unveiled.
2.1 Trust
Trust is an attitude to behave and respond in certain ways, namely to accept certain risks of harm or injury from another agent on the basis of a belief (for which there is some degree of uncertainty) that the other does not intend to do harm to one (or those one cares about), even though he/she could. Trust is a mutual confidence that no party to an exchange will exploit another’s vulnerability (Sabel, 1993). Trust has also been defined as state involving positive expectations about another’s motives (Gurviez, 1997).
McAllister (1995) considers that there is a rational decision to trust, since total
opportunistically. As calculus-based trust is validated, and benefits from working together are obtained, repeated interaction would be possible and with that interaction would come further relationship development and make the relationship increasingly unique and personal. In contrast, affective trust, based on personal experience, to great extent depends on emotional inputs (Warrington, et al., 2000). Affective-based trust reflects the quality of the emotional bond within the trust relationship. The emergence of affective-based trust as a distinct facet of trust suggests a need to address the unique role of emotional bonds within trust development processes---clearly affective bonds become more salient as trust relationships mature, and these effects merit consideration
In addition, goodwill trust refers to a willingness to do more than is formally expected. It grows when a partner commits to be responsive to certain requests outside the norm. Moreover, goodwill trust can be defined as a behavior from one partner to place the other partner’s interest ahead of their own. Contractual trust refers to each partner adhering to specific written or oral agreements. Contractual trust can be either increased or decreased by how each party performs.
Trust is a common, but heterogeneous phenomenon shaped by subjective processes. It is constructed and operationalised in distinctly different ways, in different contexts, by different actors, with different needs.
2.2 Development of Trust in bank-firm relationships
Trust provides a way to cope with risk or uncertainty in exchange relationships. Within the simplest exchange relationships, relatively little uncertainty is involved in the exchange between independent autonomous organizations. In addition, when outcomes are trivial, trust building is not a compelling issue for exchange relationship partners. However, the resources being changed between banks and firms are usually complex and intangible, resulting in higher uncertainty and risk. The more
agent is exposed to the presumed opportunistic behavior of his business partner resulting in the risks. The greater the probability and magnitude of loss is, the greater the strength of trust is required.
Trust could be built and exist in various time periods. Whilst there is no strict agreement as to the stages of the business-to-business relationship, (Zineldin, 1996, Dwyer et al., 1987; Larson, 1992; Ford et al., 2003), I suggest trust is established in three stages, namely contact stage, contract stage, and execution stage. At the start of contact stage there is little experience of the other partner’s operation or business culture, leading to high levels of uncertainty. The lack of experience and
understanding between organizations makes the success of relationship building full of uncertainty at this phase. In contact stage, both parties are unaware of each other’s performance abilities and requirements and these have to be clarified and
factors which are essential and have an influence on this trust formation process respectively.
2.3.1 Contact stage:
Contact stage relates to the activities that occur before a relationship with the partner is established. It is suggested that some initial level of trust likely exist before any interaction or exchange activities (McKnight, Cummings, and Chervany, 1998). This initial level of trust mainly depends on trustor’s characteristics. Although this initial level of trust may last in the later stages, its effect will be diminished and replaced by other sources of trust. Since in contact stage not much important corporate
information exchange happens between two partners and no interaction, such as negotiation, happens, trustor’s characteristics becomes the main source of trust in this stage.
In Johnson and Cullen (2002)’s study, dispositions play an important role during the initial phase. Dispositions refer to pre-existing and relatively constant characteristics that influence how a participant in exchanges will conduct their interactions with others. They are unobservable states or traits in an individual’s personality or an organization’s cognitive system (Weiss and Adler, 1984). The dispositional base of trust implies that trustor or trustee has a fundamental faith in the goodness of
humankind and tends to exhibit trust across an array of situations and trustees (Rotter, 1980). These enduring tendencies that actors bring to exchange regarding trust include a general trust in people regardless of the relationship and trust of more distal entities
such as the product. Some level of a disposition to trust likely plays a role in most of our lives.
Moreover, the instrumental calculus, predicated on cost and benefit analysis, involves self-optimizing through a rational utilitarian reasoning. Trustor trusts in order to avoid the costs and demands of not trusting. A worst case scenario of not trusting trustee means that trustor must constantly monitor trustee’s performance and must engage in relentless renegotiating. Though there may be discontinuous costs, over the long term, outcomes are better with trust than without it. Thus trust increases the positive beliefs about the credibility and good intentions of trustee.
At last, people are more likely to trust the people from similar cultural background, since the background expectations are higher between two similar culture
backgrounds. In characteristic-based trust, background understandings will eliminate the negotiation over terms of exchange and making the outcome of the exchange more likely to be satisfactory to both parties (Zucker, 1986). The better background
understanding, the much easier it is for the trustor to build trust with trustee in the latter phase. These characteristics are tied to persons and may be as specific as family background or as general as sex, age or national origin.
2.3.2 Contract stage:
maintaining a close and long-term relationship. The social exchange aspect consists of an exchange of social symbols between the two parties.
In general, these exchange processes involve communication between the two parties, the signaling of the other party’s behaviors, the experience and trustor perceives shared value and motivation in both parties. Through interaction process trustor builds his belief and confidence on trustee’s trustworthiness.
In Morgan and Hunt (1994)’s Key Mediating Variable Model of relationship marketing, it is theorized that relationship commitment and trust are key constructs resulting from five important antecedents, including relationship termination costs,
Interaction Process in Trust development
Benevolence
Credibility
Trust
Trustor’s beliefs on Trustee’s trustworthiness
relationship benefits, shared values, communication, and opportunistic behavior. Relationship benefits, relationship termination costs and opportunistic behavior, which are based on the transaction cost theory, will not be included in this study since my study mainly focus on the influence of culture on trust formation in bank-firm relationships. Communication helps foster trust by sharing meaningful and timely information between firms. And through shared value and motivation both parties can discover if they have beliefs in common. Additionally, another crucial influence in the strengthening or weakening of trust is the dynamics of signaling in a relationship over multiple interaction episodes. In interactions between the exchange relationship participants, actors compose, send, receive, and decode signals about trust. The meanings of things derive out of interactions with others and further evolve from interpretive processes of how others act toward a person with regard to the things. Beyond the initial trust in the exchange relationship, trust becomes a dynamic, cyclical, and reciprocal phenomenon. The development of appropriate signals, the suitable use of those signals, the appropriate interpretation and reading of signals received, and the generation and production of appropriate response signals change the level of trust in return. Moreover, according to past experience, the trustors may have better understanding about trustees. The interaction process is a process that trustors and trustees have access to find out if both parties share the same value and motivations, which are important for trust in relationships. Based on these, the trustee’s reputation built in this interaction process becomes one of the criteria for judging trustee’s trustworthiness by trustors. When judging trustees’ trustworthiness, trustors may have awareness of two different kinds of trustworthiness, credibility and benevolence. In the following parts, I will explain these concepts in a detail.
• Communication
Trust is affected by the communication between the exchanging parts. In a
relationship between organizations, trust grows out of a communication process in which shared meanings develop to provide the necessary foundation for non-opportunistic behavior. The communication at all levels in the organizations and a two-way flow seems to be a prerequisite for enhanced commitment and trust (Morgan and Hunt, 1994). In the case of restless relationship, straight communication was important to preserve the relationship from further damage. Furthermore,
Zaltman, 1993), fosters trust by assisting in resolving disputes and aligning perceptions and expectations. Anderson and Narus (1990) note that past
communication is an antecedent of trust, in subsequent periods this accumulation of trust leads to better communication. Hence, past communications from another party have been frequent and of highly quality---that is, relevant, timely, and reliable---this will result in greater trust (Friman, 2002). Accordingly, trust can be conceptualized as a communicative, sense-making process that bridges disparate groups (e.g. Lewis and Weigert, 1985; Zucker, 1986; Sabel, 1993).
• Signaling
In the trust building process, sign reading is a fundamental part of deciding whether to trust (Bacharach & Gambetta, 2001). Organizations have access to information as signals and can understand and interpret behavioral cues. In the process, the actors note and define things, interpret them, determine their significance, and respond based on these. Both parties consider the questions such as what sort of behaviors, gestures and objects can be viewed as significant symbols of trust or trustworthiness and use these symbols as the basis for their beliefs regarding their partner’s credibility and benevolence. In the exchange relationship dynamic, symbols provide the vehicle for trust signaling. Behavior in previous interactions can act as dominant signals of whether the partner is fulfilling promises, trustworthy, before the next round of commitments (Perks and Halliday, 2003).
• Experience
what to expect from a certain group of trustees, he can more readily act on beliefs about the trustee’s credibility and benevolence. Observations of one firm’s behavior enable the other party interacting with it to unveil its traits and characteristics resulting in firm’s reputation. Since reputation is based on past experience, it adds information, which could reduce uncertainty and increase trustor’s belief in the trustee’s credibility or benevolence. In addition, in some of the business relationships, trust was developed in previous social interactions and personal friendships were established before making any business commitment whatsoever. In this process, the significance of affective signals appears to come to the forefront. Personal liking and honesty create the foundation for trust and are considered important before engaging in more involved form of commitment (Perks and Halliday, 2003). And trust in such relationships is usually viewed as part of the gradual evolution of inter-firm social exchange (Hankansson and Sharma, 1996) when confidence in each other enabling greater commitment in subsequent interactions. As a result, trust is then built and can be reinforced by the manner in which social interactions are enacted (Achrol et al., 1990).
• Shared value and motivation
Meanwhile, from past experience, two parties can experiment the values and goals of the exchange partner (Jones and George, 1998). Shared values are regarded as a critical factor facilitating trust formation in exchange relationships. The tendency to be aware of shared values act as a base for developing business-to-business
relationships. These values appear to be based on integrity, respect and trust. When exchange partners are sharing the same values and motivaton, the commitment to the relationship increases (Friman et al., 2002). When individuals are maximizing their own interests (i.e., opportunistic behavior) at the expense of others, trust decreases. Jones and George’s (1998) found that signs of shared value emerge as important indices which relied on revelation through socialization behavior, enact through personal interaction. Asymmetries in trust can destabilize a relationship over repeated interactions and transactions.
Based on the above mentioned, the development of a positive cycle of
interorganizational trust is much favored by the selection of trustworthy organizations. Trust among organizations mostly is tied strongly to specific individuals, i.e.
boundary-spanners. Thus, competence, benevolence, and integrity, which are assumed to be important antecedents of trustworthiness on an interpersonal level (Mayer, Davis, and Schooormann, 1995), should have a similar effect at the interorganizational level, as long as those characteristics are attributed to the organization in question. The literatures on trust suggest that the confidence result from firm’s belief that the trustworthy party is reliable and has high integrity. Integrity is associated with such qualities as consistent, competent, honest, fair, responsible, helpful, and benevolent. The centrality of reliability in corporate bank relations has been stressed repeatedly (Paulin et al., 1998; Smith, 1989; Turnbull and Moustakatos, 1996). The seminal importance of honesty (Haubrich, 1989; Moriaty et al., 1983), mutuality (Crane and Eccles, 1993), benevolence (Turnbull and Moustakatos, 1996), forbearance from opportunism (Turnbull and Gibbs, 1987; Zineldin, 1995), and faith (Smith, 1989; Turnbull and Moustakatos, 1996) in bank-firm relationships have similarly been highlighted.
• Benevolence & Credibility
2.3.3 Execution stage:
After the first contract has been signed and two parties have agreed on the establishment of relationship, trust is built and need to be sustained for ongoing relationship. At this stage, banks have more opportunities to talk with their clients and to understand their opinions on bank’s services and how bank could better satisfy their need. Maintaining service quality and performance are the most important marketing tasks, which are highly dependent on the quality of interactions both in business transaction and social exchanges. If the banks are able to continue the interaction process as they did in previous stages, or even better, the trust based on the
interactions can be retained or even strengthened. In short, to keep the mutual trust in this stage is crucial for maintaining the later on transactions and exchange relationship.
In this stage, the main task in transaction is to follow the contract and behave in what is expected as mentioned in the contract. In transaction cost efficiency and contract theory, contract is seen as a basis for trust since it limits the opportunities and incentives for opportunism. It enables both parties to trust each other that they will behave as stated in contract. However, there is another interpretation of the
their corporate clients. In a word, trust which has been built in previous stages can be at least sustained by how bank behaves, how bank serves, and how bank interacts with the corporate clients.
2.3 Culture and its influence on development of trust
In management research, the term “culture” has been defined in many ways. One of the most influential working definitions of culture is Hofstede’s (1980): Culture is “the collective programming of the mind which distinguishes the members of one human group from another…the interactive aggregate of common characteristics that influence a human group’s response to its environment.” In general, people are seen as being different from various cultures if their ways of life as a group are
significantly different one from the other, defined as culture norms. Cultural norms are standards of conduct or acceptable behavior in any given culture. the way people communicate (adding gestures versus just speaking); the way they eat (fork in right hand if from United States and left hand if from Europe); how close one stands when communicating to another (distant in the United States, close in Latin America); equality of men and women (strive for equality in many countries; not an issue in other countries); the work ethic (commitment to employer versus individual creativity); and many other situations are influenced by the norms of a society or culture. Hofstede (1994) found that national culture explained more of the differences in work related values and attitudes of employees and managers than did position within the organization, profession, age, or gender.
Hofstede (1980) and Trompenaars (1994) all developed similar cultural dimensions by which different national cultural patterns can be compared. Trompenaars (1994) developed some conclusions on cultural variance in terms of orientations toward time and environment. The dimensions developed by him include
universalism/particularism, neutral/emotional, specific/diffuse,
For instance, in Branzei et al. (2007)’s study, they find individualists bestow trust based on a trustee’s perceived ability and integrity, in contrast of collectivists’ trusting choices dependent to a greater extent on predictable, benevolence interactions with a potential partner. These findings about collectivists and individualists suggest that, in cross-cultural encounters, signs aligned with trustors’ cultural expectations hasten trust production. Huff and Kelley (2005) found managers from individualism society generally show higher levels of trust and customer orientation than managers from collectivism societies. Moreover, people in high power distance societies viewing more powerful people as a threat show less inclination to trust them and people in low power distance cultures feeling less threatened by powerful people tend to trust them more (Kale and Barnes, 1992). Since these culture dimensions impact on people’s perception of trust and influence the interaction process of trust building, I will explain them respectively.
• Individualism/Collectivism
Individualism/Collectivism is the degree to which individuals are integrated into groups. In the individualism society, the ties between individuals are loose: everyone is expected to look after him/herself and his/her immediate family. People in all cultures distinguish between in-groups, of which they are members, and out-groups, of which they are not. In collectivist cultures self-identity is interdependence with in-group membership (Marcus and Kitayama, 1991). They are said to be more attuned to the needs of others than individualists (Schweder and Bourne, 1982) and to make stronger in-group/out-group distinctions than individualists (Gudykunst et al., 1992). Because of their identification with in-groups, collectivists’ goal should be aligned with their in-groups’ goals, however, if they aim to achieve goals with out-group members, goals are unlikely to be aligned and competitive behavior may ensue.
• Masculine/Feminine
masculine societies are associated with independence, and people tend to show a skeptical view of others (Hofstede, 1980).
• Power Distance
Power Distance is the extent to which the less powerful members of organizations and institutions (like the family) accept and expect that power is distributed unequally. It suggests that a society’s level of inequality is endorsed by the followers as much as by the leaders. Power and inequality, of course, are extremely fundamental facts of any society and anybody with some international experience will be aware that all “all societies are unequal, but some are more unequal than others”.
• Uncertainty Avoidance
Uncertainty avoidance deals with a society’s tolerance for uncertainty and ambiguity. People in uncertainty avoiding countries are always more emotional, and motivated by inner nervous energy. The opposite type, uncertainty accepting cultures, are more tolerant of opinions different from what they used to and people within these cultures are more phlegmatic and contemplative, and not expected by their environment to express emotions. People in high uncertainty avoidance cultures show a strong resistance to change (Kale and Barnes, 1992). However, people in low uncertainty avoidance cultures do not fear the future (Nakata and Sivakumar, 1996) and they are willing to sever relationships and enter into relationships with new partners.
• Long-term/Short-term Orientation
This dimension is later added to Hofstede culture dimensions, and compared in only 23 countries. People in a long-term orientation society emphasize relationships as a source of information and credibility. They are patient in achieving results and goals. On the other side, short-term orientation society desire for immediate results and achievement of goals. Thus long-term orientation is the cultural value of viewing time, valuing both the past and the future rather than deeming actions important only for their effects in the here and now or the short term. As such, individuals in a long-term orientation society emphasize on planning, tradition, and hard work for future benefit, and perseverance (Bearden, Money and Nevins, 2006). Short-term-oriented
individuals are more likely to “plan ahead” before making large purchases and are less tempted by immediate desires.
Nowadays, multinational organizations as well as many purely domestic organizations are facing with cultural diversity every day. Culture, as an important variable in relationship creation and network formation, impacts on each aspect of the basic network model in the international arena--- the actors, the activities, the
transformation of resources, as well as the atmosphere in which this takes place and the interactions involved.
organizations. In collectivist societies there is a sharp distinction between members of in-groups and out-groups (Triandis, 1995). It is asserted that the quality of social interactions between individuals in a collectivist culture depends heavily on whether or not they belong to the same in-group. As a result, there is a doubt that if the collectivists view the other party as in-group member or out-group member. In brief, culture has a strong influence on people’s perception of trust in the embodiment of their characteristics, such as their distinct level of predisposition to trust, their viewpoint on in-group/out-group background.
Additionally, the activities undertaken in the process of relationship establishment are also influenced by the culture of the locale and the way in which resources are transformed is influenced by cultural considerations as well. In cross-cultural
relationships, language, verbal, and nonverbal communication pattern vary by culture and affect message sender and receiver’s ability to properly interpret a message (Gudykunst and Ting-Toomey, 1988). Hall (1990) isolated one aspect of cultural variance related to language and communication in the culture, high versus low context. In low-context cultures, people state things directly and explicitly. These cultures often rely on languages with words that have specific and exact meanings. In contrast, in high-context cultures, lots of communication is nonverbal, indirect and implicit. It can be interpreted only in the context of the situation. Given that many of different verbal and nonverbal communications function as trust signaling symbols in the cross-cultural relationships, it is easy to witness how trust dynamics could go wrong. It is even considered that completely valid cross-cultural communication between people from different cultural backgrounds may be impossible. Frequent, repeated and multifaceted contacts among organizations with an open exchange of information increase the possibility of trust building in networks. The frequency and openness of interorganizational communication can ensure the creation of
Conversely, each culture has its own norms and values and the processes people use to decide whether and to whom trust are as well heavily dependent upon this society’s culture. In cross-cultural context, a lack of convergence in cultural inclination may result in a fundamental collapse on the trust-building mechanism (Doney, Cannon & Mullen, 1998).
2.4 Conceptual Model
After the introduction of several important variables of trust in bank-firm context, and the discussion on the influence of culture on the development of trust, the whole picture of development of trust in cross-border bank-firm relationships becomes clear and can be revealed from Figure 3.
The Development of Trust in Cross-Border Bank-Firm Relationships
Contact Stage
Contract Stage
Execution Stage
Culture Influences on Trust development
Bank’s Disposition on Trust
Instrumental-Calculus way of thinking
The Importance of Background Understanding
Interaction Process
• Communication
• Signaling
• Experience
• Shared Value and Motivation
• Trustworthiness
• Benevolence and
Credibility
The Role of Contract
Performance on what is promised
3. Methodology
In order to examine the impact of culture difference on trust building in cross-border bank-firm relationships, two interviews with two Dutch bank mangers and one interview with one US bank manager who are responsible for cross-border bank-firm relationships are conducted. Before the interviews, one questionnaire was made based on the conceptual model. According to the three stages of the development of trust in cross-border bank-firm relationships, this questionnaire was made up of four sections. In order to make interviewees better understand my research, two general questions about the role of trust and culture in cross-border bank-firm relationships and how culture relates to trust in this relationship were asked to the interviewees before three sections. These two general questions could help the interviewees have a general idea on the focus of my research and later on questions. The following parts of the
questionnaire were designed based on the three stages of trust development, each section corresponding to one stage. In these three sections, several questions were asked about the relevant concepts and variables of trust or culture in each stage. In the second section, questions were about contact stage in cross-border bank-firm
relationships. These questions were tied to those three elements in trustor’s characteristics, which I discussed in my theoretical framework. Since some of the concepts seem too abstract to understand for practitioners, after each question, some explanations were given out to help interviewees understand the real meaning of the concept and the question itself. In the third section, a few questions about the
to reveal the effect of culture on the development of trust. When constructing this questionnaire, however, several dilemmas came out mainly centralized on culture dimensions. Firstly, when I tried to introduce Hofstede’s five culture dimensions into my questionnaire, I found it is hard to explain them to managers, resulting in the problem of interpreting the questions and giving out their opinions. Secondly, although as for each of the dimensions most countries have each corresponding number presenting their culture characteristics, some numbers from some countries are falling in the middle scale, neither small nor big. This brings on the difficulty of categorizing this country’s culture dimension. At last, it is much easier for managers to describe the phenomena or experiences they had or saw about culture differences; however, they could not explain why people from other cultures were doing like this or that, that is, they could not specify which culture dimension resulting in the differences. Confronting these dilemmas about culture dimensions, I have to choose not to introduce Hofstede’s five culture dimensions into my questionnaire, although it is really interesting to look how these dimensions working on behaviors of people from various cultures. After the modification of my questionnaire, several questions were asked to these managers so as to disclose the different perceptions of trust by banks and firms from other countries and various ways to establish trust. In addition, these managers were asked to describe the culture differences they recognized in the establishing process of trust, compared to the process with Dutch companies. (The Questionnaire can be seen in Appendix)
This research is based on qualitative data collected through three face-to-face, in-depth interviewing of senior managers in multinational banks, which took place in their offices. The banks, ING Bank and Citi Group, were selected based on their representativeness in terms of rich experience on cross-border business with international corporate clients and their globalized business scope. Data were collected at the micro-level, pertained to descriptions of stories, attitudes and
displayed their importance in terms of how the individuals reacted under certain environmental conditions. Two interviews were tape recorded by the permission of the interviewees and notes were written during the interviews, later the results and the managers’ stories were transcribed into a verbatim text that served as the data for the analysis. The other interview was only recorded by making notes. Each interview lasted between 45 minutes to 60 minutes. The interviewees from ING Bank were interviewed more than once for purposes of clarification and triangulation. Selected transcriptions were read and validated by the respondents as part of the analysis. Changes suggested by interviewees were of marginal importance and primarily concerned additions of certain facts that they remembered when reading the transcripts. After interviews, an iterative process of reading, documenting, and systematizing interview transcripts was followed (Thompson et al., 1989). The analysis of the interview transcripts are based on the explanation from the
4. Findings and results
After three interviews with three bank managers, their opinions on the main concepts in the theoretical framework have been revealed by analysis of interview transcripts. All the interviewees identified the importance of trust in bank-firm relationships. Besides, their awareness of culture influences on cross-border bank-firm relationships has been discovered. Confronting these findings and results with my conceptual model, a few attention-grabbing topics are unfolded for this study. In Table 1, those concepts and variables about the development of trust in cross-border bank-firm relationships from findings and results according to interview data has been compared with those which has been discussed in theoretical framework. In the later parts, I will present the findings and results in acquired from the interviews. The italic parts are the most important findings to be discussed in Chapter 5.
Expectations from Conceptual Model Findings from Interviews
Contact Stage:
• Important for trust building • Disposition: different in various
cultures
• Instrumental calculus: different in various cultures
• Background understanding: age, gender, etc.
Contact Stage:
• Not that important for banks
• Disposition: strong proneness to trust • Instrumental calculus: not used in this
stage
• Background understanding: seniority, local proximity
• Role of reputation from third party in
this stage
• The impact of organizational culture
on this stage
Contract Stage:
• Important for trust building • Communication: difficult to
communicate, with different patterns • Signaling: hard to perceive from people
in different cultures • Experience: important
• Shared value/motivation: should be perceived
• Trustworthiness: different opinions from people in different cultures • Benevolence/credibility: both
important
Contract Stage:
• Important for trust building
• Communication: using local team to
avoid problems
• Signaling: no difficulty to perceive • Experience: very important
The role of social interactions in trust development
• Shared value/motivation: able to find • Trustworthiness: no big difference • Benevolence/credibility: both
Execution Stage:
• Important for trust maintenance
• Different preferred forms of contract in different countries
• Different views on the role of contract in this stage
Execution Stage:
• Important for trust maintenance
• Different preferred forms of contract in different countries
• People from different cultures have different opinions on the importance of keeping consistency with the contract • The relationship between risk, trust
and contract
Table 1: the italic parts are those issues to be discussed in Chapter 5, discussion and managerial implication part.
4.1 Contact Stage
In this stage, pre-meetings are supposed to happen before the formal contact with the firm begins. Three interviewees revealed that they seldom hold pre-meetings.
However, they discovered that in some countries and nations, these pre-meetings do exist in business process and seem important for people from these cultures like Japan, Italy and Russia. Another interviewee mentioned that most of the time they do not necessarily have the pre-meeting to contact the firm since they have already studied it very well and acquired all the relevant information before starting to step further with the firm. This study process, called target define, seems to play an important role in the relationship building and trust establishment process. Thus, as to interviewees the contact stage does not play such an important role as the other two stages in trust building. Interviewees regarded most of the common characteristics of the employees, such as age, nationality, education background, gender and ethnicity, from the other party as irrelevant in terms of trust building. However, interviewees did mention some characteristics they believed to be important. Two interviewees viewed the seniority of their contact person in the firm as one crucial characteristic for trust building.
Seniority refers to precedence of position, especially precedence over others of the
comprehensive knowledge of the corporate clients. This better background
understanding of the firm is proved important for trust building and relationship
growth between two parties. Besides, the track record of the employees from the firm is also mentioned to be an influential factor for trust building. As for the dispositions of interviewees about trust, all of them admitted that they have a primary confidence on their partners’ trustworthiness and tend to trust from the beginning of the
relationship building process. They also stated that they seldom decide to trust based on an instrumental calculus way of trust thinking mode before the formal relationship building stage. However, this instrumental calculus trust, predicated on cost and benefit analysis, might present in later contract phases, especially when their initial opinion on partner’s trustworthiness was questioned. Although this contact stage is not essential for interviewees, they remembered some misinterpreted situations with clients from other cultures. For instance, once upon a time the Italian firms held a so-called pre-meeting with the bank in order to try to build some initial trust before the formal relationship building meetings and intended to acquire more information from them; however, the bank was not aware of the importance of the pre-meetings and did not behave as what Italian partner expected. Under this circumstance, two parties had different expectations on these first meetings driving for both parties’ confused feeling and some trouble on the revelation of the other party’s intention as well as their attitude on business. Therefore, as result of this culture difference, the
importance of trust in this stage and the role of this stage may be viewed distinctly by people from different cultures. In addition, all interviewees acknowledged that they used the information of companies’ reputation obtained from a third party as one basis or foundation when determining to develop relationships with these companies. This reputation may act as one of the basis for trust formation at the initial stage and is regarded as a source of trust. As stated by Zucker (1989), reputation from third party is ascribed as institutional-based trust.
4.2 Contract Stage
This stage starts from formal negotiations and ends up with the first contract successfully signed by two parties if trust has been built up. As mentioned by
from prior interaction and chances to obtain first impression of other party’s
trustworthiness. The main activities are those interaction processes between banks and firms, which include not only information exchange but also emotion exchange. Most of these exchanges are happening in the communication process, which, however, is prone to be affected by culture differences owing to language barrier. Even if these multinational banks do business with local firms by using local bank people most of the time, misunderstanding could happen once in a while. Though these misunderstanding or misinterpretation caused by language problem were seldom, the distinction of communication process by clients from various cultures may hinder the trust formation in this stage. Interviewees stated that in some eastern countries people are abided with hierarchy, which leads to the multilayered and complex passage of message and information exchange. As a result, this receding information exchange diminished the effectiveness and openness of communication and proper interpretation. Interviewees also alluded that sometimes the delay of respond to enquiries or questions by eastern country clients happened because of their fear of “losing face”. The fears of “losing face”, which can be explained by their high power distance culture characteristics, induced the ineffectiveness and inefficiency of information exchange. Interviewees indicated that the idea of “losing face” by some clients from eastern countries was not helpful to problem solving and to some extent impeded straight communication between two parties as well as successful trust formation. However, another interviewee mentioned that since they were using the local team to communicate directly with local firms the difficulties brought by language and cultural differences were little. It is noted that sometimes the adaptation to local environment is necessary to avoid conflict and assist on getting along well with the other party. Nevertheless, occasionally the other party’s uncomfortable communication pattern, like those companies in Latin America countries, may lead the bank to force and put more pressure on their partners. Thus, the preferred way of communication by interviewees was the open, frequent, two-way, fast respond communication. In addition, the interviewee indicated that the bank usually use the multilayered way of communication in order to acquire the information from all levels of the firm. Various information gathered by communicating with people from
Since these multinational banks usually employ local people to deal with local
business and handle daily contact with local clients, interviewees showed that they did not have trouble to specify some signs or signaling as basis for their beliefs on
partner’s trustworthiness. It is also noted that these local employees are commonly those who have foreign working or education experience in western countries, which may help them in understanding different culture norms and values. Employing these people can reduce the possibility of misunderstanding and better interpret and transfer the idea and feeling between two parties assisting the establishment of relationship as well as trust growth. Nevertheless one of the interviewees stated that there exist some differences on the negotiation pattern in different countries. However, it would be dogmatic if these differences were viewed as the signals for judging other party’s untrustworthiness or trustworthiness. According to him, it is only a matter of culture differences. For example, in Japan, it is hard to build a relationship and trust between each other in a short time. Usually Japanese need more time to consider the situation or bank’s offer instead of making the decision quickly. And during the negotiation process, when they are saying “Yes”, it does not mean that “I agree with you”, but “I understand you”, and it means it is still some way to go before they decide. Although this distinct way of negotiation is totally different from the common way in western European countries, as for the interviewee it is only the manifestation of Japanese culture, not the signal of their trustworthiness. On the other hand, another interviewee specified that it is important to be aware of the proper signals from the
communication in the trust building process. One of the most important signals, as disclosed by the interviewee, is the consistency of the partner. If the other party failed to keep consistency during the communication process, which means they were changing their mind now and then, its trustworthiness is likely to be doubted and further information and explanation for this changing may be asked for by the bank. Thus, reading signals is one of remarkable part in trust building and relationship growth process.
expectation of the other party’s future behavior is becoming more certain. On the other hand, it shows the one’s good intention, which increases the confidence in each other’s goodwill. What’s more, past experiences include the social interactions and the personal relationships, in which trust can be developed and built as well. However, as mentioned by interviewees, people from different cultures may have different attitudes on social interactions. When doing business with Dutch companies, it is not necessary to utilize social activities for the sake of building trust or enabling greater commitment in subsequent interactions. As stated by interviewees from ING Bank, Dutch people typically do business with each other without the emotional input. The other interviewee stated that personal likeness is not that necessarily needed but to firms in some countries it is proved helpful in trust building and relationship growth. As revealed by interviewee, if there are several banks, who intend to build
relationship with the firm and promise to offer similar services, the firm is most likely to choose the bank with which it has the most comfortable personal relationship. However, it is emphasized that the capability of the bank is the most significant factor influencing the firm’s decision on which bank to choose after all. As a result, the personal likeness is to some extent useful in trust formation and relationship building process. In cross-border relationships, the banks have realized that these social exchanges, which involve a lot of emotion and personal liking, seem important to the establishment of trust and enhancement to their partners. It is mentioned that in Russian and Japanese clients’ opinions, their partner’s presence in these social activities is crucial for the continuing of relationship growth and considered as a significant affective signal. Although two parties may have different cognition of social interaction, Dutch banks were to follow their partner’s custom for the sake of better development of ongoing relationships. Another key source of trust, as
the trust built between two parties is the representation of the confidence between individuals as well as between two organizations. On the other hand, the other interviewee also admitted the importance of past experience in the trust building process and acknowledged that compared to a firm who has a very good reputation from a third party but behaves not that satisfactorily during the interaction process, the bank may be more likely to build relationship with the firm which has a normal reputation from the third party but proves its ability and trustworthiness later. In other words, the reputation based on past experience is more important and useful than the reputation from third party. Furthermore, it is mentioned by interviewee that from time to time it is indispensable to invest time in order to discover the other party’s value and motivation. However, the other interviewees illustrated that it is not hard to affirm the other party’s motivation. As explained, banks’ relationship marketing strategy aiming on long-term relationships facilitates its searching of firms whose motivation is also to build a long-term relationship. Hence, at the very beginning, both parties have found their shared motivation, which is not as difficult as in other kinds of relationships, such as joint ventures.
Furthermore, interviewees did not specify other quality of trustworthiness except for the honesty and consistency. It is stressed by the interviewees that honesty to some extent can testify the other party’s trustworthiness. If it is revealed that the other party has not behaved as honesty as expected, the banks then viewed it as cheating and considered stopping the relationship or at least hesitated to go on this relationship. Thus, dishonesty does harm to the relationship growth and leads to distrust. As for the consistency, it is said that if the firm is unable to keep consistency of their words and behaviors during the negotiations or the interaction process, the bank is likely to doubt its trustworthiness and firms’ inconsistent behavior may lead to conflict for trust building.
At last, the differences between credibility and benevolence were discussed. After the explanation of the differences of these two kinds, interviewees admitted that both two kinds of trust are very important for trust formation. However, compared to
banks would like to see benevolence from the other party as a manifestation of trustworthiness after the relationship has been built.
4.3 Execution stage
In the last part of the interviews, the role of execution stage on trust building was revealed. It is mentioned by interviewees, due to the characteristics of bank-firm relationships, an agreement or contract is necessary if the relationship is successfully established. The interviewees indicated the different characteristics of contracts in various countries. It was noted that in Anglo-Saxon countries, very detailed written contracts are implemented. In contrast, companies in western European countries prefer short contracts. However, there is a trend to write them longer in these countries. As stated by interviewee, the bank may try to persuade the firm implementing the pattern of contract recommended by bank. In addition, they mentioned that if they can trust their client so much that it is likely to adopt a verbal contract instead of a written one. In this regard, it supports some researchers’
This behavior resulted in some conflict between two parties and caused some trouble on legal issues. As stated by interviewees, this behavior “to some extent affected their trust to Korean clients in the later negotiation and cooperation”. This incident
indicated that for individualist cultures the specific agreements assist trust production by reducing risks of unreliability and cheating. However, the role of promises seems frail to collectivist cultures. Accordingly, people from different culture view the importance of contract and its relation to trust differently. But from Dutch perspective it is critical to follow the contract after the contract has been signed by two parties. If the firm did not follow the agreement, the bank may think it is a very unprofessional way of doing and to some extent affecting the trust between two parties.
Some other issues about culture difference’s influence were mentioned during the interview, which are interesting to pay attention to. For example, the culture
5. Discussion
According to the findings and results, the conceptual model manifests the trust building process of cross-border bank-firm relationships and the influence of culture on this process is revealed as well. Based on these findings and results, the main research question can be answered. However, comparing to the discussion in previous conceptual model part, some important findings from interviews results are revealed for further discussion.
Firstly, firms and banks from different cultures view the role of contact stage in bank-firm relationship differently. As for Dutch and US banks, the contact stage is not necessary and usually they leap over this stage and go into the contract stage directly. However firms in some countries in fact view pre-meeting as the first contact with the banks before both parties start their negotiations. For example, according to managers, Dutch firms seldom use this kind of meetings before formal contact; and firms in Italy, Russia and Japan etc. view early contact as one step of their business contact. The reason for the different views by banks and firms is that firms are facing with different level of risk and cost for doing business in comparison of banks in this stage. Banks may have more access to acquire information about the firms, by using credit rating and stock market information and they may get to know their targets well and have evaluated the potential risks before getting contact with firms. Besides, banks usually have already done several businesses with firms in this country. They have learned how to do business with firms in this country from previous experiences. However, firms may face more risks and uncertainties than banks, since they have less experiences on doing business with banks, especially those foreign banks, which makes their learning cost is much higher. Moreover, if firms fail to do business and build successful relationships with the bank, the marginal cost for firms to terminate the relationships and search for another bank for financial services would be higher than the cost for banks doing the same. In addition, bank is just to provide services to corporate clients and there are more potential clients for one bank than the number of banks that one firm may choose. Hence, the initial contact can to some extent
international market would like to utilize the initial contacts with the bank in order to identify bank’s point of view on them and try to evaluate the possibility of building a relationship with the bank before put more effort and investment on that. Therefore, the contact before formal information exchange with the bank is of particular importance for firms in some countries. At least the bank managers should be aware of this difference when doing business with the firms in these countries.
Secondly, as mentioned by interviewees, the reputation of the firm from the third party or track record acts as the criteria for banks to define their target clients and as basis of initial trust from banks to firms. Although, banks emphasized the significance of later interaction process, the reputation is seen as the key for selecting the proper partner to contact with. Beside, it seems the increasing level of internationalization in global business market makes the role of characteristics of employees less important in the cross-border trust development. The internationalization not only impels the convergence of different culture norms but also gives rise to the similarity of people’s background. Since there are more opportunities for people to travel or live in other countries, more international business are happening between countries, and the countries are much opener than ever before, people may develop and shape their characteristics to a more universal accepted form. Thus, the characteristics of these businessmen are more or less similar to each other causing background understanding less relevant.
Moreover, it seems the cross-culture communication does not cause a lot of troubles for cross-border bank-firm relationships. The reason for that is banks primarily use the local team in order to decrease the possible conflicts and misunderstandings in
and reduce the possible difficulties in cross-culture trust building and relationship growth. This is different from other business relationship establishment like international joint venture, whose employees may not be so experienced in international business.
Another issue suggested to be emphasized is the role of personal likeness. In some countries, such as Japan, Russia, the successful bank-firm relationships is dependent on the affective trust of firms to banks. This affective-trust of firms is based on their personal experience in service process, which is derived from emotional inputs, and originated from the relational experience during the service process. However, as revealed by banks, those relational experience or social interactions may neither do any harm to relationship growth, nor increase their trust with the clients. The main source of trust for banks is still the negotiation process, the financial and exchanged information, and the deal itself. On the other hand, banks sometimes need to use these social activity or emotional inputs in order to compete with the other banks for its clients. Under this circumstance, personal likeness seems helpful for relationship establishment and trust building if only the bank is unable to offer differentiating services compared to other competitors. Therefore, the social interaction and emotional inputs play a role as leverage in trust building and relationship growth process.
the bank on its target define. Besides, the connection and relationship between headquarters and subsidiaries may also have an impact on the relationships between the bank and the subsidiaries. Sometime, the controls from headquarters may be implemented by bank’s transactions with these subsidiaries. For example, if one subsidiary in some country intend to apply some loans from the bank, however, the headquarter is planning to reduce the production scope in that country, then the bank is likely to follow the indication from the headquarter to reduce the amount of loan or even refuse to provide the loan to that subsidiary. According to what interviewees revealed, there is no one identical pattern of doing business with international corporate clients and except for national culture other factors, such as organization history and culture are as well influencing the relationship building process.
6. Managerial implication
The findings and results of this study indicate that trust is of great importance to establishing relationships at interorganizational level, however, banks and bankers have no explicit strategy or staff guidelines for developing cross-border trust. The banks have no generally-recognized and accepted definitions of trust, trust behaviors, or how trust should be operationalised. As an important supporting element of customer service and relationship building and maintenance, trust should be
developed explicitly, strategically and consciously through the adoption of behaviors likely to encourage trust. Banks should think about and approach trust in a more structured way in which they would consider all important elements of their business practice.
In addition, some differences and variance of culture are revealed. I have seen the enthusiasm of culture differences awareness from these interviewees. They have a strong awareness and understanding of one given society’s cultural attributes and how these attributes vary from their own culture. A culturally sensitive person is open to other ways of doing things and cares about adapting to differences rather than
7. Conclusion and Limitation
The development of trust in cross-border bank-firm relationships has been studied in this study. The role of trust in cross-border bank-firm relationships has been revealed and the whole trust building process and relationship establishment become clearer now. Besides, the influence of culture on cross-border bank-firm relationships is as well manifested by interviewees’ experience and opinions. In different stages, trust develops differently and its formation process is affected by different factors. As for banks, the strong inclination of trust to their clients is shown according to interviews. Although the importance of contact stage has been viewed differently by banks and firms from various cultures, its role to firms from some countries, such as Japan and Russia, is indispensable. The interaction process in the contract stage plays a crucial role for trust building and relationship growth. During this interaction process, the reputation built based on past experience and keeping consistency on words and behaviors are regarded as vital components for trust building and trustworthiness. Personal likeness, being as leverage, to some extent has some effects on firms’ decision on picking up which bank to have relationship with. Although the problem caused by communication has been diminished by bank’s local team, the various ways of communication from different countries still result in some conflicts during the interaction process for relationship growth. In the execution stage, following the contract and being consistency with the contract, which may be viewed differently by people from different cultures, is essential for maintaining the trust and established relationship to both bank and firms. Despite banks encounter a variety of difficulties in the establishment of cross-border bank-firm relationships, their employees with strong cultural sensitivities are trained in advance about culture differences and keep learning from their local colleagues. These preparations to some extent lessen culture conflict and promote the development of trust and relationship establishment in cross-border bank-firm relationships.
is only possible by applying our model to more examples. Secondly, this is a very exploratory study whose main purpose is to elaborate how people from different cultures build trust with each other. All interviewees are from one culture (Dutch), and consequently, the findings primarily relate to this group. This limits the disclosure of how people from other cultures handle the development of trust with other nations. Thirdly, the whole study is based on the opinion of banks and bankers, the absence of information from firms make this study less comprehensive and it would be more interesting to hear the voice from them. At last, the culture differences revealed by interviewees are from no specific groups of culture and nations. As a result of that, the findings and results and culture differences can not be explained systematically. Moreover, the failure of using Hofstede’s culture dimensions in interviews gives rise to difficulties in explaining and interpreting some of the findings and results.
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