Building Trust via Electronic Mail within International Networks of SMEs

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relationships between business networks, trust, and the use of the Internet by SMEs engaged ..... Integrated Perspective from the Engineering Consulting Sector.
Conference Track: 3. Alliances and Networks Session Format: Workshop

Building Trust via Electronic Mail within International Networks of SMEs

By

Kittinoot Chulikavit Doctoral Student E-mail: [email protected]

&

James McCullough Professor E-mail: [email protected]

International Business Institute Washington State University Pullman, WA USA 99164-4851 Tel: 1-509-335-2180 Fax: 1-509-335-2182

December 2001

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Building Trust via Electronic Mail within International Networks of SMEs

Abstract This paper presents a conceptual model and propositions for research examining relationships between business networks, trust, and the use of the Internet by SMEs engaged in international business. Examining how firms use Internet technology to exchange business information and sustain business relationships, the paper discusses how factors of message characteristics and cultural differences are related through information richness to create trust. Suggestions for future research and empirical testing of propositions are offered.

2 Introduction The network organization has become a new business structure for the new century. More and more hierarchical organizations of the twentieth century are currently changing the structures of their organizations to network forms. This change is caused, in part, by the increasing capabilities of communications systems and the changing concept of business success to also include globalization. The Internet system is one communication system that has had a tremendous impact on not only the business environment but also life styles. This paper examines the effectiveness of communication over the Internet system within networks of small and medium-sized enterprises (SMEs) across countries with the goal of finding ways to improve their international business performance and increase trust between network partners. The objective of this paper is to explore of whether the Internet communications, especially electronic mail, can help SMEs increase trust within their international networks. The paper reviews major concepts related to small and medium-sized enterprises, international business networks, trust, the Internet, and information richness theory. These issues lead to the investigation of the research question via a conceptual study. A conceptual model and propositions are presented based on two independent variables: message characteristic and cultural difference, both of which appear to influence trust. This paper will examine, within the business-to-business context, ways of exchanging business information and sustaining business relationships within SMEs’ networks by means of Internet technology. However, the paper will focus on only one part of the whole Internet system, electronic mail (E-mail), which is commonly used by SMEs to communicate with their network partners. Even though E-mail is classified a lean communication medium by information richness theory, many researchers have argued that E-mail can convey rich information if it is used in suitable ways.

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Definitions of Relevant Concepts Small and Medium-sized Enterprises Competitive advantages that small and medium-sized enterprises (SMEs) have over larger firms are flexibility (von Potobsky, 1992; Yusof and Aspinwall, 2000; Rovere, 1996), innovation, shorter decision and information processes, and better working enthusiasm (Yusof and Aspinwall, 2000; Rovere, 1996). These advantages have helped SMEs to succeed in the competitive business environment even though they may be much smaller than large corporations. Nevertheless, SMEs still struggle to improve their business performance because of resource limitations, particularly human, financial, management, and information resources (Coviello and Martin, 1999; Yusof and Aspinwall, 2000; Rovere, 1996; Chen, 1999). This limitation puts SMEs in difficult positions to compete with larger firms both domestically and internationally. Consequently, many SMEs have taken another strategic approach, business coordination or networking, in order to augment their resources. In order for SMEs to have the suitable meaning for this paper, they are qualitatively described as firms exhibiting adaptability to changing markets (von Potobsky, 1992), ownership, independence (O’Farrell and Hitchins, 1988), rapidity of decision making, less effectiveness of information and communication management, and working motivation (Rovere, 1996). In the next section, business coordination or networking, which is one of the main foci of this paper, will be discussed in detail. Since the purpose of this study is to suggest ways for SMEs to improve international business practices, particularly the relationships among international network members, throughout this paper the term SMEs will refer to only small and mediumsized firms that conduct their business internationally.

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International Business Networks Networks of SMEs commonly use the Internet system as a cost-saving tool to transfer and/or exchange business information among their network members across national cultures. Many domestic and international firms have successfully used business networks as a strategic tool. Business networking has provided a competitive advantage to firms in a changing environment (Achrol and Kotler, 1999). Network relationships include both social exchange and reliable sources of vital resources (Achrol and Kotler, 1999; Coviello and McAuley, 1999). As a fundamental advantage, the network can be used for communication purposes, and buyers and sellers within an international business network can exchange valuable information and knowledge (Welch and Luostarinen, 1988). A more complex network can be developed for exchanging some specific resources among members. According to Anderson, Hakansson and Johanson (1994, pp. 2), a business network is a “set of two or more connected business relationships, in which each exchange relation is between business firms that are conceptualized as collective actors.” When a business network is formed between two or more firms in different countries, the business network becomes internationally cooperative and is called an international business network. In any international business network, the relationships among network partners have their own uniqueness that ties them together. The network approach has been used to explain how a multinational company externalizes its business activities with other firms without losing any of its control over its own specific assets. The network approach posits that internationalization of some partners, such as suppliers and distributors, in domestic business networks cause the other partners to

5 internationalize (Buckley and Ghauri, 1999). Then later when firms gain more experiences in the internationalization process, they may develop their own international networks to obtain external resources of other firms in foreign target markets (Buckley and Ghauri, 1999). This development process may take time due to an initial lack of knowledge among network partners and knowledge of psychic distance (Welch and Luostarinen, 1988), i.e. that is the “factors preventing or disturbing firms learning about and understanding a foreign environment” (Nordstrom and Vahlne, 1992, pp. 3, as quoted in O’Grady and Lane, 1996, pp. 313). According to the network approach, when a firm has become a part of the network, the firm will have its own position, which explains its roles in the network (Buckley and Ghauri, 1999). Because the development activities of a firm depend on its relationships with other firms and its position in the network, a multinational company may use its network position to externalize some foreign activities, such as subcontracting, in order to maintain its level of control of its specific assets, and still be successful (Johanson and Mattsson, 1987). There is some evidence that in some cases the network approach follows the previously described internationalization process whereas in the other cases, it does not. For example, Coviello and Munro (1997) found that some small New Zealand-based firms in the high technology (software) industry have moved into foreign markets faster than the internationalization process has postulated. However, their study confirmed that the network approach could facilitate expansion into foreign markets, choice of market and entry mode decision, product development, and market diversification.

6 Trust From the economic point of view, business cooperation should be developed and maintained through contracts and controls (Hosmer, 1995). However, recently many researchers, such as Ouchi (1980), Larson (1992), Madhok (1995), and Eisenhardt and Schoonhoven (1996), have argued that trust is another major factor of business cooperation and networks. Trust influences and strengthens the long-term relationships of network partners (Williamson, 1985; Morgan and Hunt, 1994; Hertz, 1996) and facilitates joint benefits (Hosmer, 1995). Trust is developed in part by a partner’s expectations of other partners’ behavior (Thorelli, 1986; Madhok, 1995) and by dependence on other partners’ resources (Madhok, 1995) and confidence (Moorman, Deshpande and Zaltman, 1993). Trust is a dimension of a relationship developed between two or more people or organizations. From the interorganizational perspective, Hosmer (1995) defines trust as “generally associated with willing, not forced, cooperation and with the benefits resulting from that cooperation” (pp. 390) while Aulakh, Kotabe and Sahay (1996) define trust as “the degree of confidence the individual partners have on the reliability and integrity of each other” (pp. 1008). In addition, Mayer, Davis and Schoorman (1995) describe the trusted individual as having these characteristics: 

Ability - a “group of skills, competencies, and characteristics that enables a party to have influence within some specific domain” (pp. 717);



Benevolence - “the extent to which a trustee is believed to want to do good to the trustor, aside from an egocentric profit motive” (pp. 718); and



Integrity - “the trustor’s perception that the trustee adheres to a set of principles that the trustor finds acceptable” (pp. 719).

7 Trust plays several different roles within networks (Aulakh, Kotabe and Sahay, 1996). On the one hand, trust among partners prevents the partners from behaving opportunistically to one another for short-term individual benefits but encourages the partners to behave faithfully for more important long-term benefits. On the other hand, trust among partners can be “a substitute for hierarchical governance” (Aulakh, Kotabe and Sahay, 1996, pp. 1009) by which partner firms can have opportunities to control each other, and each partner can reach its own goal. And in addition, trust can affect market performance in the long run. International firms have increasingly become partners with other foreign firms and formed their own business networks as a result of the emerging global marketplaces and consequently strong global competition (Aulakh, Kotabe and Sahay, 1996). However, it is more difficult to develop trust within international networks than within domestic networks due to more diverse cultural, social, political and economic factors. More time is required to develop trust internationally than domestically (Aulakh, Kotabe and Sahay, 1996). Firms have to signal their reliability to their potential foreign partners through meeting obligations and expectations, and consistently sharing information, expertise and resources (Johnson, Cullen, Sakano and Takenouchi, 1996).

The Internet & Information Richness Theory The Internet is considered as one of the most effective technology for conducting business because it offers significant opportunities to firms that have suffered from communication, information and transaction costs, and costs of international expansion (Porter, 2001). Due to the limited financial resources of SMEs, the Internet and electronic commerce (Ecommerce) have become a new attractive alternative for SMEs to communicate with partners in

8 their business networks. As a result, the Internet and E-commerce have brought SMEs to the position in which SMEs can compete effectively with larger firms. One of the major benefits that the Internet has offered SMEs is the effective solution for SMEs to sustain their relationships with their international business networks with very low costs. In order to have a clear understanding of what appropriate position E-mail belongs to in terms of its capabilities to convey rich information, and how to make use of it to increase trust within international networks of SMEs, the body of information richness theory and its relevant issues will be briefly examined. Media richness is a measurement of how well a particular medium is able to communicate ideas and information. Information richness theory (IRT) or media richness theory was developed by Daft and Lengel (1984) and expanded further by Daft, Lengel and their colleagues during the later period. According to the theory, information or media richness measures the “capacity [of a medium] to facilitate shared meaning” (Daft, Lengel and Trevino, 1987, pp. 358) or the “ability [of a medium] to enable users to communicate and change understanding” (Dennis and Valacich, 1999, pp. 1) within a time interval. Based on the capacity for processing ambiguous information, media channels are classified four ways: face-to-face, telephone, addressed documents, and unaddressed documents. In addition, the degree of each medium’s richness is measured by the following four criteria all together (Daft, Lengel and Trevino, 1987): 

Feedback, in which questions can be asked and corrections can be made;



Multiple cues, which include physical presence, voice inflection and tone of voice, body gestures (head nods, smiles and eye contact), words, numbers, and graphic symbols;

9 

Language variety, such as numbers conveying more precise meaning than natural language, and natural language conveying broader concepts and ideas than numbers; and



Personal focus, which involves personal feelings and emotions that can help to create better reference, needs, and current situation for the receiver.

Daft, Lengel and Trevino (1987) propose that face-to-face interaction is the richest communication medium due to its rapid mutual feedback, simultaneous communication of multiple cues, high variety of natural language, and its ability to convey emotion. The telephone medium is less rich than face-to-face interaction. Even though its fast feedback does not include visual cues and body language, personal focus and natural language are still available. Addressed documents are less rich than the telephone with slow feedback, few cues, and some degree of personal focus and natural language, while unaddressed documents are considered as the leanest communication medium due to no required feedback, very few cues and very little natural language, and no personal focus (Daft, Lengel and Trevino, 1987). In brief, the theory proposes that the effectiveness of task performance would be increased if a medium with suitable richness were used for the task. As Markus (1994, pp. 505) explains, “appropriate media choice, that is, the selection of a medium that matches the task, leads to the most effective outcome. Too little media richness may result in miscommunication; too much richness is likely to be wasteful.” According to information richness theory, the ability of communication media to carry rich information varies. High-richness media are suitable for ambiguous tasks, which involve confusion, disagreement and lack of understanding, and lead to multiple and possibly conflicting interpretations of available information. On the other hand, lean media (including computer-

10 mediated communication media) are more suitable for uncertain (absenting of information even though a framework for interpreting a message is available) tasks. While lean media cannot support highly ambiguous tasks, rich media often have excessive capacity for clear and unambiguous tasks. Noticeably, in IRT, “the richness of any medium and its ranking in the overall richness scale is fixed, regardless of any and all differences in the individuals who use it and the organizational contexts where it is used” (Ngwenyama and Lee, 1997, pp. 145). In their study of communication richness, which was based on critical social theory (CST), Ngwenyama and Lee (1997) suggest that the degree of communication richness is influenced by the validity or rightness of what is being communicated. Ngwenyama and Lee also propose that people or actors in a social or organizational context rather than computer hardware and software systems and the users of the computer output alone are the ones who process data into information. In an organizational setting, the way people communicate or send messages is not limited to only electronically linking senders with receivers. Instead, the actors also perform social acts in action situations in relation to the organizational context. Markus (1994) also argues that addressed documents such as text-based electronic mails, which are considered as lean media by information richness theory, can be used for complex communication. They are more preferable and more effective than richer media because communication patterns are influenced by the social processes, such as sponsorship, socialization, and social control, surrounding media use rather than the media themselves. Markus (1994) also suggests that not only fast communication, which result from technology, but also other factors, such as the pattern of responsiveness in the use of a medium, which results from social norms, can affect the degree of media richness.

11 Based on Markus’ (1994) argument about media richness, this current research study has been conducted with one main assumption: that E-mail is a rich medium, and therefore, can convey rich information to network members if it is used appropriately. E-mail can currently be used as either a synchronous (same time) or an asynchronous (different time) communication medium. These two different features of E-mail have provided users with more patterns of responsiveness than ever before. Since traditional E-mail uses asynchronous technology, it involves slow feedback. However, the technology offers its users some advantages, such as providing the users more time to carefully consider the content of messages they receive and send (Warkentin, Sayeed and Hightower, 1997). Instant messaging E-mail, which utilizes synchronous technology, on the other hand, provides immediate mutual feedback between the sender and the receiver, and thus, is considered a richer medium than traditional E-mail.

Conceptual Model and Propositions Before this study explores in more detail how exchanging information via E-mail is critical to establishing long-term relationships in business networks, the main concepts related to important variables shown in the conceptual model below should first be examined. __________________________ Put Figure 1 here __________________________

The model depicts the influences of message characteristics and cultural distance on the degree of trust when SMEs communicate with their international network partners through different types of E-mail. It is believed that different characteristics of message are suitable for

12 different types of E-mail in order to increase trust among network partners. In addition, in the international context, ways that SMEs from different countries use E-mail to communicate with their business partners might also affect the degree of trust.

Message Characteristics Normally, messages that are transferred from senders to receivers vary in degree of complexity. They range from simple, single-dimensional messages to complex, multidimensional messages (Maznevski and Chudoba, 2000). There are many different criteria for measuring message complexity. To be consistent with the main purpose of this paper, message complexity will be examined based on two fundamental communication processes, conveyance and convergence, which are suggested by Dennis and Valacich (1999). Dennis and Valacich (1999) define conveyance as “the exchange of information, followed by deliberation on its meaning. It can be divergent, in that not all participants need to focus on the same information at the same time, nor must they agree on its meaning” (pp. 5). They also suggest that asynchronous media are suitable for conveyance. Convergence comes from the verb “converge” which means to come together. Dennis and Valacich explain this definition further as “the development of shared meaning for information, [in which] participants strive to agree on the meaning of information and agree that they have agreed, [and therefore] high synchronicity is preferred for convergence” (pp. 5). In other words, convergence requires people to “come together” to agree, which means they should be in a synchronous situation. Therefore, according to Dennis and Valacich (1999) and many information system scholars, an appropriate communication medium should be used with a specific type of communication processes in order to make full use of the medium.

13 An important question is how E-mail can process information among partners of international networks so effectively that trust within the networks can be increased. Based on the above literature review, it is proposed that Proposition 1a: The more conveyance of message is exchanged via asynchronous E-mail, the more trust in reliability within international networks is developed. Proposition 1b: The more convergence of message is exchanged via synchronous E-mail, the more trust in integrity within international networks is developed.

Cultural Differences Cultural differences inevitably influence the relationships within international business networks (Johnson, Cullen, Sakano and Takenouchi, 1996). Many researchers such as Aulakh, Kotabe and Sahay (1996) found that within the international network cultural differences are closely related to the degree of trust. Therefore, to have an effective international business network, each member firm has to adapt itself to its partners’ cultures (Lorange and Roos, 1993). Increasingly, computerized business processes play influential roles in most business firms. Unfortunately, none of computerized systems can do their work by themselves. Still humans play important roles in controlling and monitoring the systems. In general people are related to at least one particular culture. And people from different cultures sometimes act and think differently. When network partners have to rely on each other for exchanged information, the different way each partner think, believe and behave toward synchronicity can influence the degree of trust. For example, the transferring partner firm’s decision of whether it should send the information synchronously will be evaluated by the receiving firm in order to set the degree of trust in the transferring firm.

14 There are two main approaches that researchers have used to classify dimensions of national culture. Social scientists have followed the theoretical approach when other researchers have used empirical research to classify national culture (Doney, Cannon and Mullen, 1998). However, in this paper, we classify national culture according to Clark’s (1990) integrative theory in which national culture is divided into three dimensions: relation to self, relation to authority, and relation to risk. The cultural dimensions of the integrative theory, which was developed for the purpose of international marketing and can be applied for both consumer and strategic decision-making, have been compared with other theoretical and empirical taxonomies (Clark, 1990). For example, the domain of relation to self, which involves issues of personality and selfconcept, is similar to two cultural dimensions of Hofstede (1980): individualism/collectivism and masculinity/femininity, since they all are concerned with the relationship between the individual and the group. Second, the dimension of relation to authority, which is related to hierarchical relations in family, social class, and reference groups, has followed the same norms and values proposed by Hofstede (1980) as the power distance dimension. Finally, the domain of relation to risk, which consists of the perception, evaluation, and experience of risk, represents uncertainty avoidance of Hofstede (1980). Since the integrative theory is recommended for the study related to strategic decision-making, it is used in this study to understand the relationships between the national culture and trust within international networks through E-mail communication. Accordingly, this leads to Proposition 2a: Relative to partners in high relation to self cultures, trustors in low relation to self cultures are more likely to increase trust in integrity by exchanging the message via a synchronous E-mail.

15 Proposition 2b: Relative to partners in high relation to authority cultures, trustors in low relation to authority cultures are more likely to increase trust in reliability by exchanging the message via an asynchronous E-mail. Proposition 2c: Relative to partners in high relation to risk cultures, trustors in low relation to risk cultures are more likely to increase trust in reliability by exchanging the message via an asynchronous E-mail.

Conclusion and Further Research The conceptual model and propositions that are presented in this paper have significant implications for both practitioners and researchers who are in interdisciplinary work that involves communicating with partners of international networks by means of E-mail. So many business messages are exchanged everyday via E-mail. The importance and difficulties of exchanging messages via E-mail also vary widely. Even though E-mail has been categorized as a lean medium, many research studies have shown enough evidence that E-mail can be used to transfer rich information or messages. This paper proposes how E-mail can be used effectively to increase international network relationships such as trust. The paper focuses on only two main factors, message complexity and cultural differences, that can affect the degree of trust in the network. Future empirical work is suggested to test the propositions. Additionally, more research should be conducted toward the influence of the management team’s international experience on the international networks of SMEs, especially when SMEs regularly use E-mail as their communication tool to exchange information or messages with their network partners. The research issue might also include how SMEs that have limited international experiences, and

16 possess different national cultures and native languages can communicate with their international partners effectively via their web sites, and how the Internet, the only communication tool SMEs prefer due to limited financial resources, can benefit SMEs in the process of selecting new international business partners.

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FIGURE 1 Building Trust via Electronic Mail within International Networks of SMEs: A Conceptual Model Message Characteristics Conveyance Convergence

Cultural Distance Relation to self Relation to authority Relation to risk

E-mail Richness

Trust

Synchronicity

Reliability

Asynchronicity

Integrity