Building Trust Early the Influence of First and Second Order Expectation on Trust

8/12/2019 Building Trust Early the Influence of First and Second Order Expectation on Trust

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International Business Review 12 (2003) 421443www.elsevier.com/locate/ibusrev

Building trust early: the influence of first andsecond order expectations on trust ininternational channels of distribution

Ronald Scott Marshall

Portland State University, School of Business Administration, P.O. Box 751, Portland,

OR 97207-0751, USA

Received 8 August 2001; accepted 23 January 2003

Abstract

Scenario-based survey data from export managers in the U.S. and Peru are used to exploreinteractive decision-making in an international distribution channel context. Export managersfirst and second order expectations [J. Acad. Market. Sci. 13 (1985) 4] are operationalized interms of affect- and cognition-based trust mechanisms [Soc. Forces 63 (1985) 967] and areexamined in relation to multi-stage interactive decision-making. Findings suggest that buildingtrust early is more dependent on matching, rather than exceeding, a partners expectations. Inaddition, managers who heavily weigh their beliefs of what others expect of them in decision-making, tend to make affect-based decisions in the early stages of an interorganizationalrelationship. Finally, consistent with culture-based theories on in-group/out-group orientation,Peruvian export managers were more likely than US export managers to focus on a moreinstrumental, or cognitive, approach to building an initial exportimport relationship.

2003 Elsevier Science Ltd. All rights reserved.

Keywords:First and second order expectations; Culture; Channels of distribution; Trust

1. Introduction

Substantial research has investigated the role of trust in channels of distribution(e.g.Nevin, 1995; Aulakh, Kotabe, & Sahay, 1996), and it is becoming increasingly

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doi:10.1016/S0969-5931(03)00037-4


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422 R.S. Marshall / International Business Review 12 (2003) 421443

clear that trust between firms is an essential characteristic of successful interfirmcollaboration. Reliance on trust in a distribution channel emerges through repeated

transactions between the exportimport partners. The pattern of interaction between

partners includes operational factors (such as job descriptions, administrative pro-cedures, decision-making rules, etc.), but it is even more far-reaching in that it reflectsobjectives, attitudes and values (Argandona, 1999, p. 223). This observation sug-gests that the development of trust in distribution arrangements involving managers

from different cultures, who are likely to have dissimilar attitudes and values focused

on cooperative decision-making, presents significant challenges to both exportersand importers.

A considerable amount of scholarly research has focused on the behavioral and

social issues related to cooperation in international channels (Aulakh et al., 1996;

Llanes & Melgar, 1993; Johnson, Sakano, & Onzo, 1990; Paswan & Young, 1999).

However, there remains limited understanding of how culture influences the develop-ment of trust in the critical early stages of international channel relationships. Thus,

an examination of the emergence of trust between partners adhering to different sets

of cultural values is an interesting and important undertaking for advancing theory

in marketing channel research.

From a practical viewpoint, managers in international channel relationships hold

certain expectations regarding the activities of their partners. Both the importer and

exporter in an international channel hold expectations regarding factors such as sales

support, financing, order volumes, and documentation assistance. National culture

plays an important role in developing relational norms and trust between partnersfrom different countries(Hewett & Bearden, 2001; Sullivan & Peterson, 1982). Thus,

adding clarity to how culture influences expectations and trust development in inter-national channels can assist import and export managers to build international chan-

nel relationships founded on cooperative understanding.

In order to more clearly understand how cross-cultural exportimport relationshipsdevelop, this paper investigates the interaction in the initial stages of an internationalchannel relationship. More precisely, we look at (1) the influence of expectations ofmanagers from different cultures on cooperative decision-making, and (2) the impact

of their decisions on the development of trust early in the relationship.

In this regard, this papers contribution is two-fold. First, this paper looks at howsequential managerial decision-making is influenced by managers expectations. Thelack of research on relationship development is largely due to the difficulty inattaining longitudinal data that tracks the same decision-makers over an extended

period of time (exceptions include Yan & Gray, 1994; Parkhe, 1991). The scarcityof empirical research has prompted calls for greater understanding of the dynamics

of interfirm cooperation (Smith, Carroll, & Ashford, 1995). To capture the role offirst and second order expectations in a dynamic decision-making environment, ascenario-based survey questionnaire is used to analyse export managersexpectationsand decisions over three stages of interaction.

Second, this paper builds on existing evidence indicating that there are definitedifferences in the degree to which the expectations of others influence managerialdecision-making across cultures (Adler, Brahm, & Graham, 1992). When two people


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423R.S. Marshall / International Business Review 12 (2003) 421443

attempt to cooperate, the effective meaning of each persons own cognitive worldand cultural conditioning flavors their words and actions (Gulbro & Herbig, 1995).However, it remains unclear to what degree managers consider their partners differ-

ent approaches to business conduct and how these differences influence the man-agers actual decision-making. This study uses Lewis and Weigerts (1995) affect-and cognition-based dimensions of trust as alternate bases for managers to assess

their expectations and make decisions over the three stages of interaction. Fig. 1

illustrates the model conceptualization of the relationship between culture, first andsecond order expectations, managerial decision-making and the building of trust in aninternational channel of distribution. The following section provides the theoretical

development of these relationships and offers hypotheses. The next two sections

discuss the research methods and results, respectively. The last section offers a con-

cluding discussion of the theoretical and practical implications of this research.

2. Conceptual background

2.1. The development of trust

Much literature states that trust is the central limiting factor in the success (i.e.

sustainability) of strategic relationships (Anderson & Weitz, 1992; Doney & Cannon,

1997; Heide & John, 1990).Moorman, Deshpande, and Zaltman (1993, p. 82)define

trust as a willingness to rely on an exchange partner in whom one has confidence.Blau (1964, p. 98)uses the term trust to refer to a belief on the part of one personthat another will fulfill his or her obligations and generally will pull his (or her)

Fig. 1. A model of first and second order expectations and trust building in international channels of

distribution.


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weight. Similarly,Carnevale, Pruitt, and Carrington (1982, p. 12) define trust as aconcomitant expectation that the other [in a dyad] will reciprocate and state thatthis expectation is essential for the goal of achieving mutual cooperation.

In the context of buyerseller relationships, trust is generally described in twodimensions(Doney & Cannon, 1997; Ganesan, 1994; Kumar, Sheer, & Steenkamp,

1995). First, perceived credibility focuses on the expectancy that the partners wordor written statement can be relied on. Second, benevolence is the extent to which

the partner is genuinely interested in the other partners welfare and motivated toseek joint gain. Thus, trust in a channel relationship is founded on a belief that achannel partner is able to (credibility) and will (benevolence) meet expectations in

fulfillment of obligations agreed to, either implicitly or explicitly.Research has shown that a downstream channel member that trusts its supplier

exhibits higher levels of cooperation (Morgan & Hunt, 1994)and exerts more effort

on behalf of the principal (Anderson, Lodish, & Weitz, 1987), and trust of the sup-

plier firm influences a buyers anticipated future interaction with the supplier(Smith & Barclay, 1997). Trust in a supplier also reduces conflict and enhanceschannel member satisfaction (Anderson & Narus, 1990). A firm that trusts its supplieris more committed to and intends to stay in the relationship (Anderson & Weitz,

1992; Morgan & Hunt, 1994). Although research in the channel domain has well

elucidated the essential role of trust in building long-term, committed relationships,

there remains little evidence of how trust is actually built between partners at the

early stages of their interaction. This research looks specifically at the initial stages

of a channel relationship to add greater insight into how trust forms early.

2.2. The development of trust in cross-cultural channels

Particularly in international channels, customers and suppliersbring different con-

texts to their exchange relationships (Anderson & Narus, 1990), affecting a firmsdecisions ofifandin what wayto cooperate with their trading partner (Campbell,1998). Cultural values provide a foundation from which beliefs about how to meet

expectations in a partnership are constructed. Triandis (1972) suggests that values

influence behavior by providing nonspecific guidelines toward pursuing end goals.

Similarly, Shank and Abelson (1977) suggest that cultural values provide scripts, orsequences of appropriate social action in the context of ones own culture. Thus,values predispose individuals to a preference of a given end state or outcome, and

the ways in which the outcomes are achieved. In addition, values are believed to

influence the interpretation of response outcomes of work, causing some outcomesto be positive reinforcements and others negative (Fernandez, Carlson, Stepina, &

Nicholson, 1997).

Chen, Chen, and Meindl (1998)provide a theoretical foundation for trust-building

across cultures. They formulate a cultural contingent model of cooperation utilizing

Lewis and Wiegerts (1995) distinction between cognition- and affect-based trust.

Lewis and Weigert (1985)suggest that trust can be motivated either by strong posi-tive affect for the object of trust (affect trust) or by good rational reasons for awarding

trust (cognitive trust) but more usually by some combination of both. Chen et al.s


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model suggests that culture has a straightforward and rather deterministic effect on

how cognition- and affect-based trust can be engendered. From the cultural individu-

alistperspective,Chen et al. (1998)posit that a collaborative relationship is enhanced

to the extent that cognition-based trust leads to expected outcomes. An individualisticperson initiates cooperation for instrumental reasons, and cognition-based trust

emerges as one adheres to role responsibilities. Chen et al. (1998) also argue that

cognition-based trust is not sufficient for cooperation in collectivistcultures. For acollectivistperson, role expectations are not confined to task performance, and self-interest is subordinated to group welfare. Further, unlike individualists, affect-basedtrust can precede cognition-based trust for collectivists because of personal loyalty

to significant others.Thus, Chen et al. (1998)propose, on one hand, that cognition-based trust will be more positively related to cooperation in an individualist culture

than in a collectivist culture. On the other hand, affect-based trust will be more

positively associated with cooperation in a collectivist culture than in an individual-

ist culture.

In the international distribution channel context of this study, the construction of

social interaction in terms of cognitive and emotional investments in relationships

provides meaningful ways for the decision-makers to signal cooperative (or,

uncooperative) behavior with their partners.

2.3. The role of expectations in developing trust across cultures

All contractual relationships from discrete to relational are affected by the normsor patterns of acceptable conduct established in the relationship (Nevin, 1995). In

fact, all social interaction, in part, is guided by peoples ability to read the interpret-ations others make of them and their actions (Mead, 1934), and adjust their behavior

to correspond in a meaningful way to those expectations. In an international distri-

bution relationship, management decision-making may be characterized as a

sequence of decisions between two managers from different cultures that provokedifferent responses and have different outcomes. For example, an exporters decisionto commit additional salespeople to support the importers selling efforts may leadthe importer to decide to be highly cooperative by offering to increase the pro-

motional activities in its designated sales territory. Through a sequence of interactionseachpartner learns about the other and that experience influences any future interac-tion (Argandona, 1999). Thus, the pattern of interaction among the decision-makers

becomes of critical importance.

According to the conceptualization of trust elaborated in the previous section,development of trust between two partners is based to a significant extent on theexpectations of the partners. Miller, Lewis and Merenski (1985) suggest that an

assessment of the impact of managerial decisions in a channel of distribution should

account for expectations at two levels: the managers expectations and expectationsof expectations. That is, decision-making relies, in part, on the ability of decision-

makers to understand (1) what they expect their partner to dofirst order expec-tations, and (2) what they expect their partner expects them to dosecond orderexpectations.


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A distribution relationship across borders and cultures complicatesfirst and secondorder expectations. A manager in an international channel relationship may assess

how the other party perceives the consequences of certain actions, and how he is

likely to react to that perception. Because different expectations regarding modes ofcooperation, based on cultural norms and values, may play a significant role in cre-ating instability in cross-cultural arrangements (Thompson, 1996), understanding the

role of first and second order expectations in international importexport relation-ships is an important theoretical and practical objective.

3. Hypotheses

3.1. Expectations, trust and decisions

The relationship between first and second order expectations and cognitive andaffective trust-related behavior can be developed through an understanding of self-

versus other-oriented perceptions. Markus and Kitayama (1991) argue that individ-

uals with interdependent perceptions of self express and experience emotions and

motives that are significantly shaped and directed by a consideration of the reactionsof others. On the other hand, the behavior of individuals with independent percep-

tions of self is organized and made meaningful primarily by reference to one s own

internal repertoire of thoughts, feelings, and action. In a similar argument, Rubinand Brown (1975, p. 158) suggest that a low interpersonal orientation is charac-terized, first and foremost, by a non-responsiveness to the interpersonal aspects ofhis relationship with the other, whereas a high interpersonal orientation isresponsive to the interpersonal aspects of his relationship with others.

In situations where managers first order expectations (i.e., expectations of others)relate to their decisions, the determination of what is expected in the relationship isderived largely from an individuals own judgment of what is appropriate(Geanakoplos, Pearce, & Staccheti, 1989). Managers relying primarily on first orderexpectations impose a self-derived decision framework around the relationship, and

do not attend to second order expectations in their decision-making. Because cog-nition-based trust relates to the fulfillment of ones own expectations around obli-gations to another and that the goodwill of suchfulfillment is expected to be out ofenlightened self-interest(Lewis & Weigert, 1985), we argue that managers who rely

to a greater degree on first order expectations are more likely to make instrumentalor cognitive investments in cooperative relationship.

On the other hand, second order expectations entail calculations of managersbeliefs about their partners expectations of them. That is, in making decisions, man-agers have a more interdependent perception of self (or, high interpersonal

orientation) and more closely attend to the expectations held of them by others.

Affect-based trust is linked to the socialemotional bond between partners(Lewis &Weigert, 1985), and requires thought about a partners expectations. Affect-basedtrust actions suggest that a manager considers the other persons thoughts and feel-


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ings in decision-making. Thus, we suggest that second order expectations in a chan-

nel relationship are related to exporters affect-based decisions.In summary, managers who frame their decision-making more in terms of first

order expectations of others will look to cognitive-based actions for building relation-ships. Conversely, managers who rely to a greater degree on second order expec-

tations in decision evaluation will depend to a greater degree on affect-based actions

in a cooperative relationship.

Hypothesis 1a: Managers first order expectations are negatively related to exceedminimum obligations with affect-based actions.

Hypothesis 1b: Managers first order expectations are positively related to meet

only minimum obligations and exceed minimum obligations with cognition-based actions.

Hypothesis 2a: Managers second order expectations of affect are negativelyrelated to meet only minimum obligations and exceed minimum obligationswith cognition-based actions.

Hypothesis 2b: Managers second order expectations of affect are positivelyrelated to exceed minimum obligations with affect-based actions.

3.2. Culture and expectations

This research extends Chen et al.s (1998) model into the environment of theinitial stages of an international interorganizational relationship, where in-group/out-

group distinctions are significant. When interacting with out-group members, peoplefrom collectivist cultures tend to be very competitive and unhelpful. For example,Lituchy (1997) found that Japanese negotiators were much more likely to use com-

petitive behaviors in intercultural negotiations than in intracultural negotiations.

Sinha (1990)notes thatthe in-group members compete with outside members rather

than cooperate, exploit rather than sacrifice, manipulate rather than help, fight ratherthan accommodate (p. 37).Partners in the initial stages of an international interorganizational relationship are

considered members of an out-group (Paswan & Young, 1999). Although collectiv-

ists may maintain an interdependent perception towards in-group members

(Markus & Kitayama, 1991), they are likely to approach out-group members with

greater caution andless likely to commit significant resources to a partnership without-group members (Hewett & Bearden, 2001; Sullivan & Peterson, 1982). Collectiv-

istic managers, therefore, may tend to be more competitive and instrumental towards

their partners in the early stages of the relationship. The more individualistic man-

agers may be more in-group/out-group neutral vis-a-vis collectivistic managers(Hofstede, 1980). They will take a less competitive stance toward the new partner

(Sullivan & Peterson, 1982). Relative to their collectivist counterparts, individualistic


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managers may be more likely to favor behaviors building affect into the relationship,

and more inclined to base their decisions on their second order expectations.

Hypothesis 3: In the early stages of an importexport relationship, collectivisticexport managers will be more likely than individualistic export managers to have

first and second order expectations ofmeet only minimum obligationsor exceedminimum obligations with cognition-based actions.

3.3. Meeting expectations to build trust early

Aulakh et al. (1996) find that US firms partnerships in Asia and Europe are

characterized by higher levels of trust than those in Central/South America. Theysuggested that the role of trust may vary in cross-cultural relationships and offered

direction for future research to examine the different aspects and types of trust as

each applies to cross border partnerships, especially by incorporating the cultural

differences that exist across countries. Given the importance of trust in continuing

interorgranizational relationships, and its variant role in different cultures, the respon-

dents perceptions of the partners trustworthiness represents a valuable outcomemeasure of the initial contract between the two partners.

Gulati, Khanna and Nohria (1994) find that cooperation is enhanced when onepartner offers unilateral commitments to the partnership that exceed the minimum

levels required by the agreement. This suggests that exceeding expectations in adistribution partnership will enhance trust between partners. However, as suggested

earlier, collectivist export managers are likely to approach the initial stages of a

distribution arrangement with a fair degree of caution and less likely to commit

significant resources to apartnership early on (Hewett & Bearden, 2001; Sullivan &Peterson, 1982). In fact, Brett and Okumura (1998) found that in US and Japanese

negotiations offering too much too soon was interpreted as trying to buy favor, andactually harmed rather than helped to develop mutual trust. We suggest, then, that

collectivists are more likely than individualists to expect cognition-based investments

by their partners early in the relationship and will hold a higher level of trustworthi-

ness towards partners that meet these expectations. Furthermore, because of theinstrumental approach to the initial stages of the partnership, collectivists will also

have a higher level of trustworthiness for a partner that pursues a forbearing cog-

nition-based strategy than a forbearing affect-based strategy.

Hypothesis 4a: Collectivistic export managers will have a higher level of trust-

worthiness of partners following a forbearing cognition-based strategy than will

individualistic export managers.

Hypothesis 4b: Collectivistic export managers will have a higher level of trust-worthiness of partners following a forbearing cognition-based strategy than for

partners following a forbearing affect-based strategy.


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3.4. Control variables

3.4.1. Industry

Dyer and Chu (2000) found that trust in supplierautomaker relations in Japanand Korea were most strongly influenced by instrumental assistance provided by theautomakers related to product quality, cost improvement, and inventory. Further-

more, the inability to examine the quality of commodity goods ex-ante to exchange

may increase the relative importance of affect-based relationships in commodity-

based relationships. Although no formal hypothesis is offered, a dummy variablewas created to represent export managers trading primarily in value-added-based

products to control for potential differences.

3.4.2. International business experience

The more years a respondent has been involved in international business activities,

themore likely it is that he/she has a geocentric rather than an ethnocentric perspec-

tive(Perlmutter, 1969). That is, the greater the international experience of the respon-

dent, the more likely he/she will view the conduct of international transactions out-

side the confines of his/her culturally-based valuesa geocentric perspective.

3.4.3. Age of respondent

Age does not necessarily correspond directly with international business experi-

ence, and thus, it is difficult to infer that older respondents possess more geocentric

perspectives in their business conduct. In fact, just the opposite may be the case.But age can be influential on trust-related behaviors (Gilbert & Tang, 1998). Thus,a managers views of business cooperation may change with age, although not withsame effect as international business experience.

3.4.4. Gender

Potential differences between respondents based on gender were incorporated asa control.

4. Method

4.1. Study design

The survey questionnaire offers the respondent an international exporterimportersituation based on a summary of a distribution sales contract. The contract delineates

the obligations of both the buyer and seller, and provides both cognition and affect-

based trust actions to further commitment in the relationship. Then, a scenario-based

questionnaire guides the export manager (respondent) through a sequential exchange

between the exporter and a fictitious importer. The exporterimporter relationship

takes place in three stages of interaction, representing an initial six-month contractbetween the parties. At the first stage, export managers make decisions regardingthe degree of cooperation they will offer based on their first order expectations


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(expectations of their partners preferences) and second order expectations (beliefsregarding their partnersexpectations of their own preferences). Thefictitious partnermakes a decision in response to the respondents decision. At each subsequent stage

of interaction, the respondent updates his first and second order expectations regard-ing the partners strategy set based on his previous decisions and the partnersresponses to those decisions. Through three periods of interaction, export managers

will form strategic postures and attitudes towards the relationship (Antonides, 1994).

Based on the exporters perceptions of their relationships over the initial contractperiod, they will indicate the level of trustworthiness held towards their partners.

Practicality in research design requires limiting the number of the fictitious part-nerspossiblestrategy sets to be used in this research. Four strategy sets were used(see Table 1), the selection of which is based in part on practice and in part on

theory. First, all the fictitious partner strategy sets start with a minimum cooperativeaction. Afirst stage minimum cooperative action reflects an initial cautious approachto international business transactions. Such an approach was frequently cited as

appropriate in the pre-test interviews of export managers in both countries.

The second and third decisions in the four treatments reflect either a forbearingor opportunistic approach to cooperative play. The forbearing approach proceeds

with consistent plays in both the second and third stages by exceeding minimum

obligations with either affect- or cognition-based actions. The opportunist approach

includes either an affect- or cognition-based action in the second stage, and a mini-

mum action in the third. The selected strategy sets permit examination of the effects

of forbearance and weak cheating at different stages of the relationship. Table 1shows the paths of the more forbearing strategy sets ofCautious Affect and Cau-tious Cognition against more weak cheating strategies of Opportunist Affect andOpportunist Cognition.

4.2. Sampling procedures

This study was conducted in two national cultures in order to examine the effects

of collectivism and individualism and differing in-group/out-group orientations on

Table 1

Fictitious partner strategy sets over three stages of interactiona

Forbearing Weak cheating

Stage Cautious Cautious Opportunistic Opportunistic

affect cognition affect cognition

1 M M M M

2 A C A C

3 A C M M

a M: meet only minimum obligations; A: exceed minimum with affect-based action; C: exceed minimum

with cognition-based action. Randomly assigned to respondents.


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decision-making. Peru was selected because of the strong familism, collectivistic

nature, and pervasive in-group orientation in the Peruvian culture (de Luque &

Matute, 1999; Scott, 1994) and the authors pre-existing relationship with the Associ-

acion de Exportadoresin Peru. Similarly, the US was selected for the relatively highlevel of individualism (Hofstede, 1980), limited differentiation between in- and out-

groups (Fukuyama, 1995), and the relatively easy access to the respondent sample.

Two random samples of 500 each were taken from the following directories: US

Exporters Directory (US Department of Commerce: approximately 13,000 entries),and Asociacion de Exportadores (ADEX) Membership Guide, (Exporter Associationof Peru: approximately 2000 entries). Respondents were randomly selected, and

questionnaire versions (varied only by the four fictitious partner strategy paths) wererandomly assigned to each sample. Response incentives were included for both

samples: US respondents chose between four national charities to which one dollar

would be donated for a completed response; Peruvian respondents received a dis-

count on fees for international trade training for a completed response. Standard data

collection methods were used. Pre-notification postcards were sent to both samples,and thorough follow-up procedures were executed including two follow-up phone

calls and/or faxes.

In the US, 38 surveys were returned with no forwarding address, reducing the

original sample size to 462. A total of 107 usable responses were received for an

effective response rate of 23%. In Peru, 102 were returned with no forwarding

address, reducing the original sample size to 398. A total of 78 usable responses

were received for an effective response rate of 20%. Because the directories usedas the initial sample frames were compiled the year previous to publication, the

number ofno forwarding address was not surprising. These response rates appearto be consistentwith reportedfindings in international survey work (e.g., Sullivan &Peterson, 1982).

4.3. Survey development

The methods suggested byBrislin (1976)for achieving construct and measurement

validity in multiple languages were employed. A standard paper-and-pencil question-

naire was drafted in English. It was then translated into Spanish, then back-translatedinto English, once again translated into Spanish, andfinally retranslated into English.If questions arose, equivalency, rather than exact translation was sought to ensure

accurate representation of the constructs of interest.

There is limited precedent in marketing and management literatures for using scen-ario-based research. Inman and Zeelenberg (2002) looked at repeat purchase

decision-making. In their study, each subject examined three scenarios about an

experience with a service or product. After making their initial purchase decisions,

a second scenario depicted a negative usage experience and the degree of regret

was measured.Sullivan and Peterson (1982)used a one-page scenario describing an

AmericanJapanese joint venture. They used the position of power, venture profita-bility, the health of interpersonal relations, and the party in primary control of the

decision process as predictor variables of the perceived future interpersonal trust.


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Pre-testing of scenarios is a critical aspect of this research methodology. Pre-

testing of the instrument involved three exporter managers from each country. A

number of helpful suggestions for improvement from both US and Peruvian man-

agers were incorporated to improve the realism and readability of the instrument. Forexample, pre-test feedback was important in designing the summary of the importerexporter contract placed at the front end of the questionnaire. This contract summary

was intended to capture a realistic trade relationship and engage the respondents in

the ensuing decision-making stages. Thorough pre-testing ensured both experiential

realism and an adequate response rate.

4.4. Measures

4.4.1. First and second order expectationsFirst and second order expectations are operationalized using Buckley and Cas-

sons (1988)conceptualization of interorganizational cooperation: meet only mini-mum obligations (weak cheating) or exceed minimum obligations (forbearance).Furthermore, exceed minimum obligations is separated into two possibilities:exceed minimum obligations with cognition-based actions and exceed minimumobligations with affect-based actions.

4.4.2. Cognition- and affect-based trust

Measures of cognition- and affect-based actions are adapted from McAllister

(1995) to fit into an international exportimport context. A sample of the measuresused for the first and second order expectations and decisions in all three stages,operationalized with cognition- and affect-based actions, is provided in Appendix A.

4.4.3. Trustworthiness of partner

Measurement of trustworthiness consisted of a three-item scale adapted from

Ganesan (1994).It is incorporated at the end of the questionnaire and asks the respon-dents to answer the items by reflecting on the history of interaction between themand their partners.

4.4.4. Industry

A dummy variable is included for the industry of the respondent. The variable is

coded based on whether the industry was commodity- (0) or value-added-based (1).

4.4.5. International business experience

This variable is represented as a continuous variable of years the respondent has

been conducting international business activities.

4.4.6. Age of respondentAge is measured as a continuous variable on the chronological age of the

export manager.


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4.4.7. Gender

Gender of the respondent is measured as a dummy variable, male (0), female (1).

5. Results

5.1. Analysis

To examine the first and second order expectations and strategic cooperativedecisions at each stage of the relationship, multinomial logit analysis (MLA) was

used. There were three discrete choices available to the respondents in their expec-

tations, expectations of expectations, and the strategic decisions. MLA is used to

ascertain themarginal effects of each of the independent variables on the three dis-crete choices(Greene, 2000). The groups formed by the categories of a polytomous

dependent variable are not independent, preventing the researcher from simply per-

forming as many separate logistic regressions as there are categories (Menard, 1995).

MLA handles non-independence by estimating the models for all outcomes simul-

taneously, except one category is left outto serve as a baseline. Thefirst and secondorder expectations and the strategic decisions in all three periods of the initial con-tract are measured with the same basic functional model: f (minimum, exceed

(affect), exceed (cognition)) = x1 + x2 + xi + . In all cases, the baseline is

represented byminimum. Trustworthiness of the partner is analyzed using standard

ordinary least squares (OLS) regression. LIMPDEP 7.0 was used to run the MLAand the OLS regression analyses.

5.2. Tests of the hypotheses

Table 2 shows the results of the MLA used to test hypotheses 1a and b, 2a and

b, and 3. A summary of these results is provided in Table 3,highlighting the results

that are supportive, contradicting, and not significant.

5.2.1. Expectations and decisionsHypotheses 1a and 1b focused on the relationship between first order expectations

and managers decisions to meet or exceed obligations in an agreement. The resultsfor these hypotheses are mixed. There is a fairly clear indication that expectations

of cognition are positively associated with decisions to exceed obligations with cog-

nition-based actions, and negatively associated with decisions to exceed obligations

with affect-based actions. However, in most cases, expectations of affect are not

significant with any decisions, and where they are significant, expectations of affectcontradict the hypothesis. Expectations of affect are significantly and negativelyrelated to meet only minimum obligations in the first two stages, and significantly

and positively related to exceed with affect in the first stage. Although counter tothe hypothesis, these results are not entirely surprising. Even though the managers

are basing expectations on an independent perception of self, these expectations are


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Table 2

Results of multinomial logit analysis for exporters stage 1, 2 and 3 first and second order expectations

and stage 1, 2 and 3 decisions, respectivelyab

Dependent variables

Independent variables Stage 1 decision Stage 2 decision Stage 3 decision

Marginal effects on probability of selecting meet minimum (Y = 0)

Constant 0.23 0.03 0.12

Exporter expectations of affect 0.32 0.16 0.03

Exporter expectations of cognition 0.37 0.10 0.05

Exporter exp. of exp. of affect 0.50 0.20 0.22

Exporter exp. of exp. of cognition 0.30 0.12 0.15

CountryPeru 0.25 0.14 0.01

Age of respondent 0.00 0.00 0.00

International experience 0.00 0.00 0.00

Industryvalue added 0.17 0.00 0.02

Genderfemale 0.03 0.03 0.05

Marginal effects on probability of selecting exceed with affect (Y = 1)

Constant 0.17 0.37 0.25






Age of respondent

0.00 0.00 0.00International experience 0.00 0.00 0.00

Industryvalue-added 0.15 0.17 0.26


Marginal effects on probability of selecting exceed with cognition (Y = 2)

Constant 0.06 0.25 0.34






Age of respondent 0.00 0.00 0.00

International experience 0.00

0.00 0.00Industry value added 0.02 0.17 0.25


Log likelihood function 112.37 89.28 81.71

Restricted log likelihood 188.00 175.37 187.45

a N = 185b P 0.1; P 0.05; P 0.01; P 0.001.

still affect-based, leading managers away from minimal investments toward affect-

based investments in a partnership.Hypotheses 2a and 2b focused on managers second order expectations and

decisions to meet or exceed obligations in an agreement. In all three stages, man-


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Table 3

Summary of results for hypotheses 1, 2 and 3a,b

Stage 1 Stage 2 Stage 3

Hypothesis H1a and b: 1st order expectations and decisions

Expectations of affect Meet minimum () () NS

Exceed with affect (+) NS NS

Exceed with cognition NS NS NS

Expectations of cognition Meet minimum () NS NS

Exceed with affect (+) () ()

Exceed with cognition NS (+) (+)

Hypothesis H2 a and b: 2nd order expectations and decisions

Exp. of exp. of affect Meet minimum () () ()

Exceed with affect (+) (+) (+)

Exceed with cognition NS (

) (

)

Exp. of exp. of cognition Meet minimum () () ()

Exceed with affect NS NS NS

Exceed with cognition (+) NS NS

Hypothesis H3: countryPeru

Meet minimum (+) (+) NS

Exceed with affect () () ()

Exceed with cognition NS (+) (+)

a Bold indicates direction supports hypothesis; italics indicate direction counter to hypothesis; NS indi-

cates lack of significanceb

N =

185

P

0.1;

P

0.05;

P

0.01;

P

0.001.

agers expectations of expectations of affect are significantly and negatively relatedto meet only minimum obligations and significantly and positively related to exceedthe minimum obligations with affect. Managers having expectations of expectations

of affect were also less likely to choose to exceed the minimum obligations withcognition. These results indicate that managers tending to reveal interdependent per-

ceptions of self are heavily inclined to make affect-based investments in their partner-

ships, providing strong support for Hypotheses 2a and 2b.

5.2.2. Culture and expectations

Hypothesis 3 posited that Peruvian export managers will reflecta stronger in-grouporientation by focusing on instrumental, utility-seeking decisions. Table 2shows that

Peruvian managers are more likely than US managers to choose to meet only mini-mum obligations in stages 1 and 2. Peruvian managers are less likely in stages 1,2 and 3 to choose exceed with affect than US managers, compared to the baselineof meet only minimum obligations. Finally, Peruvian managers are significantlymore likely in stages 2 and 3 to choose to exceed with cognitionthan US managers,compared to the baseline category. Although the results indicate a movement towards

a more cooperative stance by the Peruvian managers, they still show a focus on amore instrumental approach. The results support hypothesis 3, that Peruvian export

managers focus more on cognition-based decisions.


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5.2.3. Building trust early

Table 4 shows the results of the OLS regression on partner trustworthiness. This

model has an adjustedR2 of 0.48 and the model fit is highly significant. The interac-

tion variable Country Cautious Cognitionrepresents Peruvian managers receivingthe cautious cognition partner strategy path. The significance of this interaction vari-able supports hypothesis 4a, that Peruvian managers will have a higher level of

trustworthiness for the cautious cognition path than US managers. Peruvian managers

also have a higher level of trustworthiness than US exporters for the CautiousAffect strategy path (interaction variable Country Cautious Affect), althoughthe coefficient and the level of significance are lower than for Country CautiousCognition. In order to test hypothesis 4b, that Peruvians will have a higher levelof trustworthiness for the Cautious Cognition than for the Cautious Affect strat-egy, an F-test was run between the two interaction variables. The F-value is 1.20

and the two variables are not significantly different at a0.05. Thus, hypothesis 4bis not supported. Peruvian managers do not show a statistically significant differencein trustworthiness for partners following a Cautious Cognition path than those fol-lowing a Cautious Affect strategy.

5.2.4. Control variables

The industry variable is significant in a number of cases. It is suggested that value-added industry managers place less emphasis on relationship building in affect-based

terms. This supposition is supported. In stages 2 and 3, both Peruvian and US respon-

Table 4

Results of OLS regression for partners cooperative path, respondent characteristics, and stage 3 trust-

worthinessab

Independent variables Dependente variabletrustworthiness in

stage 3

Constant 3.82

Cautious affect partner path 0.78

Opportunistic affect partner path 0.50

Cautious cognition partner path 0.67Country cautious affect 2.99

Country opportunistic affect 0.87

Country cautious cognition 4.01

CountryPeru 1.92

Industry 0.24

Age of respondent 2.63

International business experience 1.67

Genderfemale 0.54

Adjusted R2 0.47

F 14.58

df 172

a N = 185b P 0.1;P 0.01; P 0.001.


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dents from value-added industries are less likely to choose exceed with affect,compared to the base category. Similarly, respondents from value-added industries

are more likely in stages 2 and 3 to choose exceed with cognition. International

experience is only significant in two cases, and the coefficients in both cases arequite small. Age of respondent is not significant in all three stages for all discretechoices of the dependent variable. Gender is significant in only two cases. Femalerespondents are less likely to choose exceed with affect and more likely to chooseexceed with cognition in stage 2.

6. Conclusion

In this research, the overriding objective was to add clarity as to how trust develops

early in an international distribution channel. We looked specifically at the relation-ships between first and second order expectations and cognition- and affect-basedactions in managerial decision-making, and at how cultural differences play a part

in determining expectations, decision-making and the development of trust. Results

of this study show that export managers who weigh heavily their beliefs of what

others expect from them (second order expectations) in decision-making, tend to

make affect-based decisions in the early stages of an interorganizational relationship.

Furthermore, the national culture of export managers influences their initial approachto the partnership in terms of a willingness to meet or exceed contract obligations,

whether to commit instrumental or relational investments in the early stages, andhow investments in a partnership impact the development of trust.

6.1. Expectations matter

The initial stages of an international exportimport relationship present thedecision-makers with a myriad of uncertainties. Bounded rationality and inexperiencewith a partner limit a managers capacity to accurately estimate the probabilities andattractiveness of available discrete options (Cyert & March, 1963). From a theoretical

perspective, the operationalization of a distribution relationship in terms offirst and

second order expectations accurately portrays a sequential decision-making frame-work for an international distribution relationship. Second, it accurately reflects thedecision-making framework used by export managers in the two cultures used in

this research. These results, in part, substantiate the conceptual and measurement

validity of Miller et al.s (1985) distinction between first and second order expec-tations in a distribution relationship. Previous international channels research has

established the importance of perceptions of influence strategies (Johnson et al.,1990); the preferred types of support mechanisms and monitoring activities

(Paswan & Young, 1999); and, the likelihood of acquiescence and cooperation

(Hewett & Bearden, 2001). There remains a need to better understand how channel

members choose certain strategies in the formative stages of a relationship when thegreatest uncertainty exists. Significant future research opportunities exist that canconceptualize specific support, monitoring and evaluation activities, or perhaps


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dependence and use of power strategies, in terms of first and second order expec-tations to further our understanding of channel member decision-making.

From a practical perspective, export and import managers will benefit from clearly

understanding that expectations matter; in fact, expectations matter at two levels.Geyskens, Steenkamp and Kumar (1999) found strong support for their argument

that non-economic satisfaction with a channel relationship is related to the develop-

ment of trust between partners. Our study furthers these findings by asserting thatcooperation in international channels does not depend so much on complying with

the specific obligations delineated in a contract, but rather on understanding theexpectations held by each partner for the method of meeting and possibly exceeding

the obligations in the contract.

6.2. Culture influences expectations

In this study, we looked at behavioral dimensions in international channels in

terms of cognitive and affective expectations and actions. Chen et al. (1998)suggest

that collectivists are inclined towards affective-based trust in building cooperation.

Our results, however, reflect the importance of context in determining how individ-uals reference cultural elements of the self (Triandis, Leung, Villareal, & Clark,

1985). Peruvian exporters show a higher tendency to rely on minimum cooperation

or cognition-based actions than do American exporters in the early stages of inter-

national channel partnership. From a theoretical viewpoint, the results in this study

emphasize the importance of cultural perceptions of in-group/out-group distinctions(Sinha, 1990) and the temporal dimension of trust development across cultures.

Peruvian exporters viewed the foreign importer as an out-group member and had

a higher proclivity to approach the relationship in a more instrumental manner. That

is, the more collectivistic exporters referenced the in-group/out-group distinction to

determine their approach to cooperation in the channel relationship. Furthermore,

although a great deal of research considers the impact of thecollectivism/individualism and other cultural dimensions on trust and cooperation,

many of these studies assess these factors at one point in time (e.g. Hewett &

Bearden, 2001). Static assessments of the level of trust and cooperation in the inter-

organizationalrelationshipsare handicapped by the difficulty of incorporating histori-cal dynamics(Parkhe, 1993). There is a significant need for future research to addresstrust building across cultures from a dynamic perspective to see how different dimen-

sions of culture are referenced in the process of cooperative decision-making. Moving

beyond this study, scholars may look at how such considerations as financial rewardsand penalties, influence strategies, and degree of dependence interact with behavioraldimensions in helping or hindering the evolution of trust across cultures.

6.3. Building trust early: meeting rather than exceeding expectations

Trustworthiness of ones partner is an important measure of the desire to continuea business relationship. However, simply exceeding the basic set of contractual obli-

gations to build trustworthiness into cooperative relationships does not consider cul-


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turally diverse expectations.Buckley and Casson (1988)assert that the optimal strat-

egy in most cases is to forbear at the outset and to continue to forbear as long as

others do(Axelrod, 1984).Gulati et al. (1994)describe the strategic value of offering

unilateral commitments that exceed the minimum levels required by an agreement.In this study, exceeding the minimum obligations of the distribution agreement did

not necessarily lead to higher levels of trustworthiness.

Matching, rather than exceeding, expectations appears more important for creating

higher levels of trustworthiness. Carnevale et al. (1982, p. 12) view trust as a con-comitant expectation that the other [in a dyad] will reciprocate. We extended thisdefinition by including the need to understand at what level and in what way differentcultures fulfill and expect others to fulfill reciprocity in international businessrelationships. Peruvian export managers first and second order expectations anddecision-making were more instrumental and utility-seeking in nature than their

US counterparts.

This studys results imply that managers need to understand expectations ratherthan simply exceeding the stipulations of an agreement in the hopes of building a

cooperative atmosphere. Similar to the conclusions that Brett and Okumura (1998)

draw from their study on US and Japanese negotiating behaviors, offering too much

too soon, or simply offering an unexpected form of cooperation, could actually harm

rather than help build the relationship. Future theoretical and empirical research of

cooperation and trust in different cultures will benefit from distinguishing potentialdifferences in expectations and how these expectations evolve throughout a relation-

ship.Business managers may gain greater insight into international business relation-

ships by understanding the levels and timing of cooperative activities. As this

research suggests, certain managers from more individualistic cultures may be more

likely to signal a desire for a mutually beneficial relationship by offering forbearancein some form. This signal is based on their own ethnocentrically based expectations.

However, managers from in-group dominant cultures may not expect such actionsand they may have the opposite (or, detrimental) affect on the relationship.

6.4. Differences across industries

Because this study was conducted across multiple industries, it was essential to

control for possible industry-related effects. The results indicate that export managers

from value-added industries, such as software and consumer food products, displayed

more utility-seeking perceptions and decision-making in the initial stages of an inter-organizational relationship. Theseresults, in a generalized fashion, are similar to the

findings byDyer and Chu (2000)that trust in supplierautomaker relations in Japanand Korea was most strongly influenced by instrumental assistance provided by theautomakers. Thus, this research suggests managers, regardless of their cultural and

personal characteristics, involved in value-added industries rely on personal, affect-

ively charged relationships relatively less than managers involved in commodity pro-duct-based trading. Although there is a clear picture emerging that the importance

of instrumental and relationship investments in partnerships vary by industry context,


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there remains a significant need for future empirical investigation of how trust andcooperation evolve in different industries. Furthermore, an interesting avenue for

future research may look at cooperation in across-industry distribution channels, for

example between packaging suppliers and food companies, or between accountingservice providers and consumer electronics companies.

6.5. Study limitations

This research faces potential limitations. First, scenario-based research confrontsthe issue of validity of measurement. Describing an exporterimporter relationshiponly simulates reality. Pre-tests with exporters in both countries were intended to

mitigate validity issues, but the ability of the respondents to fully immerse themselves

into the hypothetical partnership may limit the conclusions drawn from the results.

Second, the specificity of the sample, exporters in each country, limits the generaliz-ability of conclusions. Testing these conclusions, for example, in a multi-cultural

office setting will further the understanding of cross-cultural dynamic decision-mak-ing. Third, this study assumes the country level variables as proxies for the cultural

dimension for the two samples. Separation of culture into key sub-dimensions may

provide greater clarity on the relevance of the cultural-level variable.

Appendix A

The following represents the measurement of the first and second order expec-tations. TheB response category represents the affect-based action choice, and theC represents the cognition-based action choice.

Your........Stage Expectations: In the second stage your expectations may or may

not have changed based on past activities between your two firms.At the........stage of the relationship, do you expect:

A. The importer to meet only the minimal obligations of the agreement, or

B. The importer to exceed the minimal obligations by performing such activities as

(1) Inviting your companys sales staff to its home office so that employees of thetwo companies can get to know each other better. (2) Sharing information informallyto encourage openness about ideas and feelings, or

C. The importer to exceed the minimal obligations by performing such activities as

(1) Assigning additional sale people to improve the effectiveness of the promotionalactivities. (2) Providing bigger advertising and trade allowances.

The Importers.......Stage Expectations: Similarly, your beliefs regarding your

partners expectations of you to perform certain activities may or may not havechanged.

At the........stage of your partnership, do you believe the importer expects you to:

A. meet only the minimal obligations of the agreement, or


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B. exceed the minimal obligations by performing such activities as (1) Offering to

host some of the importers sales people at your facility, providing tours of the localarea, social events, and some technical training on the product. (2) Increasing infor-

mal opportunities for both companiessales people to about personal and professionalissues, or

C. exceed the minimal obligations by performing such activities as (1) Providing

trade discounts on the second shipment to lower the importers expense. (2) Provid-ing promotional money to supplement the importers advertising expenses. (3) Offer-ing a lower price per unit for the first order.

Your........Stage Decision: At the stage, you have the same three alternatives to

take.

At the........stage of the relationship, which of the following actions would youchoose to take:

A. meet only the minimal obligations of the agreement, or

B. exceed the minimal obligations by performing such activities as (1) Offering to

host some of the importers sales people at your facility, providing tours of the localarea, social events, and some technical training on the product. (2) Increasing infor-

mal opportunities for both companiessales people to about personal and professionalissues, or

C. exceed the minimal obligations by performing such activities as (1) Providing

trade discounts on the second shipment to lower the importers expense. (2) Provid-ing promotional money to supplement the importers advertising expenses. (3) Offer-ing a lower price per unit for the first order.

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Documents

Building Trust Early the Influence of First and Second Order Expectation on Trust