Interorganizational Trust in Business to Business E-Commerce

Most previous research in the Information Systems discipline focused on information systems and

technology, e-commerce applications such as Inter-Organizational Systems (IOSs), competitive

advantages, and security issues. The emphasis on IOSs' gave rise to concerns about Inter-Organizational

Relationships (IORs), as trading partners became aware of the social-political factors that affected their

relationships. IOSs involve the sharing of e-commerce applications in different locations. When this study

was initiated in 1997, universal standards were not fully developed. This posed a security concern for

Small-Medium-Enterprises, particularly in Australia and New Zealand.

This study examines the importance of inter-organizational trust (trading partner trust) in ecommerce

participation. The objective of this study is to empirically examine the importance of interorganizational-

trust in e-commerce participation.

Despite the acknowledged importance of trust, only limited research has examined the role of trust

among trading partners in business-to-business e-commerce, when this study was initiated in 1997. As the

participation in e-commerce increased, the need for trust among trading partners became more pertinent in

business-to-business e-commerce. Exploratory research was carried out via three case studies in the

automotive industry. The automotive industry was selected as a critical and typical case for Electronic Data

Interchange (EDI) via Value-Added-Networks, and the findings emphasized on the importance of interorganizational

trust in e-commerce participation.

The exploratory study, together with a literature review, provided the theoretical foundations for the

development of the conceptual model. Theories from multiple disciplines including the marketing,

management, sociology, information systems and e-commerce were applied in the conceptual model.

The research question developed for this study is:

How does inter-organizational trust (trading partner trust) influence the perception of ecommerce

benefits and risks of e-commerce, thus influencing the extent of participation in ecommerce?

The conceptual model was then tested using a multiple-case-study research strategy that aimed to

solicit qualitative and in-depth understanding of inter-organizational trust in the context of business-tobusiness

e-commerce. Ten organizations from a cross-industry selection that formed four bi-directional

dyads and two uni-directional dyads participated in the study. They included a public sector organization

involved in customs clearance; their Internet service provider; a customs agent (broker); an importer; two

organizations in the computer and data communications industry; two organizations in the

telecommunications industry; and two organizations in the automotive industry.

The primary unit of analysis in this study is the uni-directional dyad. The case study participants

included e-commerce coordinators, IT managers, and senior executives involved in e-commerce. In

addition, e-commerce applications, existing documents, and standards contributed to secondary data

sources. For example, trading partner agreements, organizational charts, web sites, and internal security

policies gave evidence of the organizations' best business practices and background information on the

organization and their products.

The findings of the four bi-directional dyads (eight organizations) and the two uni-directional

dyads indicated that trust was important for participation in e-commerce. The findings differed by the type

of e-commerce application used and the industry. For example, organizations that developed extranet

applications had only one trading party (the supplier) undertaking the implementation process. Suppliers

were involved in the installation of their websites that provided product information. In addition, suppliers

had to train their buyers to use extranet applications. The products consisted of many different parts, (such

as data communications, computers and telecommunications) which made the task of placing an order

complex. These inter-organizational dyads (Cisco-Compaq NZ, and Siemens-Telecom NZ) experienced

relational risks arising from the need to establish trust among their trading partners.

On the other hand, Avery Ford NZ and Toyota NZ applied intranet applications and Internet-based

EDI for routine orders between the manufacturers and suppliers. Smaller organizations such as the customs

broker and the importer experienced a smooth e-commerce adoption due to their application "Trade

Manager" which was not connected to the Internet.

The study contributes to theory, practice and research in the following ways:

First, rather than inferring characteristics of e-commerce adoption from a technical and economic

background, this study examined behavioral characteristics of trading partners in business-to-business ecommerce

from theories in multi-disciplines. The primary emphasis of prior research was on transaction

economics, its competitive advantages and/or external pressure (socio-political). This study focused on the

importance of inter-organizational trust in e-commerce participation. The findings of the study led to the

development of a model of inter-organizational trust within bi-directional dyads in e-commerce

participation.

Second, the study contributed to practice as it increased the awareness of e-commerce

practitioners, who will check the trust behaviors of themselves and that of their trading partners. Trading

partners will be better able to select and evaluate trust and security-based mechanisms in e-commerce, thus

protecting themselves against opportunistic behaviors of their trading partners.

Third, the study contributed to research as it paved the way for longitudinal studies. This study

only took a micro-perspective of inter-organizational trust within dyadic relationships as it was intended to

be an exploratory study. Further research should extensively test the model using a field survey with

business-to-business e-commerce organizations.