Working Papers,
Örebro University, School of Business

Abstract: Suppliers have experienced unexpected consequences for their businesses due to changing situations for their important customers. Such events may also occur at short notice, at least when it comes to necessary and radical decisions. Often suppliers are not aware of the full extent of these events until it is too late for them to take countermeasures, i.e. develop appropriate strategies. With increasing turbulence in the marketplace, it is clear that firms need to be aware of relationship-oriented marketing strategies. To cope with change the supplier and its customer will need strategies based on jointly understood action. Action, both strategic and operational, is based on each party’s meanings concerning why they do business with one another (enactment). Dependence and trust between the parties are issues in their construction of meaning and will therefore underlie their enactment. The purpose of this paper is to investigate dependence and trust between suppliers and industrial customers, implications for action of dependence and trust, and, finally, draw conclusions about dependence and trust for business strategy.

Dependence. A firm can be dependent on a specific other firm due to investments in specific assets geared to that firm. A literature survey identifies five types of specific assets: Personal relations, competence, integration of governance systems, dedicated volume of goods/services, and product/process specialization. Another reason for dependence is the structure of the market, which may lack alternative providers of similar products. Then it becomes difficult or impossible due to large switching costs to substitute one firm with another for the provision of good/services.

Trust. A literature survey concerning trust leads to the conclusion that important aspects of trust probably vary between different environments and settings where trust is an issue. Since trust between suppliers and industrial customers is the issue in this study, the notion and implications of trust among strategic decision-makers in that empirical setting would be important. By using the trust literature together with an empirical investigation three types of trust for the study are discerned: Relationship-based, competence-based and moral based trust.

Dependence and trust. There is a temporal interplay between trust and dependence. Trust is expectation concerning the future. Dependence differs from trust by being formed in the present time and may therefore become a means to avoid the problems in assessing the future. But when you choose to trust someone, as a consequence you become dependent. Interrelationship between dependence and trust is thus complex and intertwined. It varies with task, situation and persons involved. The order of events in time has an impact. Earlier actions by actors influence later ones. Trust develops stepwise in repeated encounters between the parties. The parties’ actions towards each other and the evolvement of action processes seem to be the key to understanding suppliers’ and customers’ dependence and trust. This interplay is in the paper illustrated with dependence and trust development in two dyads of supplier – industrial customer. In the cases we could discern that meaning construction with dependence and trust, interrelated with action, can lead to improved or deteriorated business relations between the parties. As in the cases patterns of virtuous circles or vicious circles may emerge. Expectations concerning the other party, i.e. trust, could thus change substantially, leading to different types of action than before.

Conclusions concerning business strategy. Dependence and trust have different impacts on a firm’s strategy and consequently on strategic change. Dependence indicates preconditions for action and what action is precluded due to the characteristics of business between the parties in terms of specific assets and substitutability. In all, dependence sets limits for strategy, wide or narrow. Trust, on the other hand, can be a driving force shaping strategy, opening up possibilities in markets and products as well as governance systems linking parties. But lack of trust and deteriorating trust may also preclude business that could otherwise have been done. There needs to be trust backing up any viable strategy and strategic change. Furthermore, it is vital that the parties concerned convey in their communication what they consider to be meanings in their business. If they have dissimilar views on dependence, action may become disjointed and not understood by the other party. Likewise, openness concerning trust in one another is needed in order to display mutuality in trust or build mutual trust. On industry level trust in supplier relationships at firm level can be promoted by providing information exchange and arenas for that purpose to support potential business partners to embark upon trust development. Society, in its policy-making, can promote trust on firm level by clear-cut rules of the game, which – among other things – will reduce the risks that parties in an exchange will go to disjointed action due to different interpretations of what society requires from firms in business.

Keywords: supply chain; strategy; business relationship

JEL-codes: M10

24 pages, September 1, 2005

Price: 120

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