Cooperation, Trust and Performance

8/9/2019 Cooperation, Trust and Performance

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Cooperation, Trust and Performance – Empirical Results from Three Countries

Matthias Fink1 and Alexander Kessler1,21Institute for Small Business Management and Entrepreneurship, WU Vienna University of Economics and

Business, Augasse 2-6, 1090 Wien, Austria, and 2Institute for Management and Entrepreneurship, FHWien

University of Applied Sciences of WKW, Waehringer Guertel 97, 1180 Wien, Austria

Email: [email protected]; [email protected]

Reverting to the resource-based view of strategic management and cooperation theory,we provide argumentation for the value of two critical resources to cooperating firms:cooperation experience and maxim-based trust. The results of a large-scale surveyin three European countries (Austria, Slovenia and the Czech Republic) reveal an

important fact: although cooperation experience contributes to business performance,the contribution of maxim-based trust to success is significantly higher. As a result,corporate success depends not only on the quantity of cooperation experience, butalso – and to an even greater extent – on the quality of cooperation with regard to theform of coordinative power established within the cooperation arrangement. Given thatmaxim-based trust has been identified as a feasible coordination mechanism incooperation relationships, it might therefore be freed from its frequent characterizationas utopian and out of touch with reality.

Introduction

The dynamization of markets in the context of

globalization has intensified the need for businessesto develop the ability to create unique sets of

resources in order to ensure sustainable corporate

success. For this purpose, one promising means of

ensuring access to these critical resources –

especially for small and medium-sized enterprises(SMEs), which normally do not have extensive and

manifold resource configurations at their disposal

– is entering into cooperation relationships. By

establishing a cooperation relationship, the part-

ners can bundle (parts of) their resources and may

thereby create a new and unique set of resources

which can hardly be imitated. This is especially thecase when the partners succeed in identifying and

capitalizing on the synergetic potential of the

cooperation arrangement. Under these circum-

stances, such an arrangement has the power to

enhance the performance of both partners. Thecontribution of cooperation relationships to busi-

ness performance can be short term or long term in

nature (e.g. Macneil, 1980; Williamson, 1991).However, entering into cooperative relationships

becomes a risky venture if the exchange relation-

ship involves forgoing one’s own short-term profits

in order to realize long-term gains together with a

cooperation partner (Roessl, 1996). In suchtransaction relationships – which are the focus of

our research – cooperating companies make their

own business performance dependent on their

cooperation partner’s future behaviour. The ability

to establish and maintain successful cooperation

relationships is a critical resource in its own right,

and it is built up in particular through practicalexperience in inter-firm cooperation relationships

(e.g. Brulhart, 2007).

However, it is not only the practical coopera-

tion experience of the partners which makes (the

partners in) a cooperation relationship successful,

but also – and to an even greater extent – the

coordination mechanism within these relation-The authors would like to thank the two anonymousreviewers for their constructive and helpful comments.

British Journal of Management, Vol. 21, 469–483 (2010)

DOI: 10.1111/j.1467-8551.2009.00647.x

r 2009 British Academy of Management. Published by Blackwell Publishing Ltd, 9600 Garsington Road, OxfordOX4 2DQ, UK and 350 Main Street, Malden, MA, 02148, USA.

mailto:[email protected]:[email protected]


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ships. We focus on long-term dyadic cooperation

relationships between SMEs. These relationships

represent contexts that are highly demanding

with regard to behavioural coordination and areoften characterized by simultaneous market and

organizational failure. In such contexts, e.g. joint

R&D or cooperative internationalization, inter-organizational relationships can only be explained

through trust-based behavioural coordination.

These situations call for mutual trust as a

coordination mechanism between the cooperation

partners, as such trust plays a significant role inensuring the success of the cooperation and – as

a consequence – the individual performance of

each cooperation partner. In order to fully under-

stand the coordinative power of trust, we have to

differentiate between instrumental (extrinsically

motivated) trust and maxim-based (intrinsically

motivated) trust (Osterloh and Weibel, 2000). Weargue that maxim-based trust represents a valu-

able and particularly inimitable resource for the

success of the cooperation and the performance of

the cooperation partners.

This paper contributes to the field of coopera-

tion research on several levels. We not only provide

theoretical justification for the special value of (1)

cooperation experience and (2) maxim-based trust

as critical resources for business performance and

develop a measurement model for cooperation

experience, maxim-based trust and performance

(which contributes to sharpening the measurementof trust, as called for by Moellering, Bachmann

and Lee (2004), to name one example), but we also

demonstrate the value of these two critical

resources empirically. To this end, we use data

from a large-scale questionnaire survey (n5303)

in three European countries (Austria, Slovenia and

Czech Republic) and employ hierarchical linear

regression analysis to test three hypotheses.

The results show that although cooperation

experience contributes positively to business

performance, maxim-based trust makes a signifi-

cantly larger contribution to performance incooperation arrangements. Therefore, corporate

success depends not only on the cooperation

experience (quantitative aspect), but also – and

to an even greater extent – on the form of

coordinative power within the cooperation

arrangement (qualitative aspect).

The paper is organized as follows. In the next

section we develop three hypotheses against the

backdrop of a focused literature review. We then

discuss the sampling and operationalization of

the variables. Next, we present the empirical

results, which are discussed and converted into

implications linked to previous results in the twoensuing sections. We conclude by stating the

limitations of this study and pointing out several

directions for future research.

Theoretical background anddevelopment of hypotheses

Cooperation, opportunistic behaviour and success

In order to generate profits, each company needs

to have a certain set of resources at its disposal.

For sustainable corporate success, it is crucial to

secure access to such resources. Companies can

employ three different modi operandi in order to

ensure this access (Pfeffer and Salancik, 2003): (1)They can either internalize the source or (2) build

up the competence and structures necessary togenerate the resource themselves. (3) Alterna-

tively, companies may enter into a cooperative

arrangement with a company that has access

to the resource in question. As regards the third

alternative, companies need to reach several

decisions: they need to decide which resources

are critical for achieving their value proposition

and which of them they lack; which companies

have those capabilities; and, based on cost, quality

and speed considerations, whether the firm shouldpartner with or acquire those companies (Kim and

Mauborgne, 2000).

It is easy to see that there is less risk of losing

access in the case of internalization or in-house

production. Thus, in this context inter-firm co-

operation might appear to be a less attractive

alternative. However, the resources’ future value

might not be predictable due to dynamic contextual

conditions such as rapid technological change,

modification of legal regulations or shifts in

demand. In such cases, the risk of sunk costs

impedes the development of capacities for in-houseproduction. This issue is also relevant in coopera-

tion relationships, as changing partners gives rise to

switching costs (Lipman and Wang, 2000). If the

internalization of resources is also complicated, e.g.

due to time or legal constraints or relatively high

investment requirements, cooperative inter-firm

arrangements become the most favourable means

of gaining access to resources which are critical to

the focal firm’s business performance.

470 M. Fink and A. Kessler

r 2009 British Academy of Management.


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In particular, SMEs often face situations in

which both in-house production and internaliza-

tion are unattainable. Manoeuvring within a

limited number of rather specific and narrowbusiness areas with a comparatively small ‘war

chest’, SMEs typically perceive unacceptably high

risks when they consider obtaining control overcritical resources single-handedly. Consequently,

cooperative arrangements represent an attractive

option in the strategic portfolio of these firms.

At the same time, inter-firm cooperation provides

a vehicle for transactions which would otherwiseoverburden the focal SME (e.g. joint R&D or

internationalization projects). By widening the

behavioural portfolio, cooperative arrange-

ments allow SMEs to exploit opportunities which

they would have to forgo as isolated firms, and

these arrangements hold the potential to create

a synergetic, critical and hardly imitable combi-nation of the cooperation partners’ individual

resources. In this way, inter-firm cooperation may

make a positive contribution to the business

performance of both cooperation partners.

However, SMEs in cooperation arrangements

often find themselves in a rather paradoxical

situation. By entering into a cooperative arrange-

ment with another company, they agree to

coordinate their behaviour with the cooperation

partner, thus restricting their own autonomy. As

the elements of performance and reward are

temporally separated in a cooperative exchangerelationship and a partner can always deviate from

the agreement (Macneil (1980), from a contracting

perspective; Emerson (1962), from a power-depen-

dence perspective), cooperating companies make

their own business performance dependent on their

partner’s future behaviour. Therefore, cooperative

strategies bring about a high level of risk: by

frustrating the partner’s expectations, a cooperator

may skim all of the short-term profits alone at the

expense of joint long-term profits, thus defecting

from the cooperation relationship. The possibility

of such opportunistic behaviour makes cooperativearrangements a risky venture (e.g. Elango and

Fried, 1997; Wathne and Heide, 2000). The ability

of a firm to build up a sophisticated and effective

instrument to handle this room for opportunistic

behaviour determines the benefit it can generate

from cooperative arrangements.

In order to build up such an ability to

coordinate cooperation relationships, the firm

may resort to two critical resources: the firm can

(1) tap its cooperation experience and (2) estab-

lish maxim-based trust. In the following, the

different bases, functional mechanisms and their

(relative) impact on business performance will bediscussed and condensed into three hypotheses.

Cooperation experience as a critical resource for

business performance

Organizational learning theory argues that

companies may develop the capacity to handle

complex transaction relationships by gaining

experience in similar settings. In an iterative

process, the firm extracts inferences from experi-

ence gained in past cooperation relationships and

extrapolates them to future situations in order toimprove its behaviour (Argyris und Schoen, 1978;

Fiol and Lyles, 1985; Levitt and March, 1988).

This argument is also supported by evolutionarytheory (Kale, Dyer and Singh, 2002), which

claims that a firm’s competences evolve through

incremental adaptation and progressive learning.

In the context of cooperation relationships, these

competences grow along with experience on two

levels: first on the level of the experience gained in a

cooperation relationship with a specific partner,

and second on the level of general experience in

cooperation management (Brulhart, 2007), which

can be gained in the context of either domestic or

international cooperation relationships (Nadolska

and Barkema, 2007). Based on the argumentation

above, we propose the following hypothesis:

H1: A cooperating company’s cooperation

experience (measured in terms of the number,

duration and internationality of cooperation

relationships a company has participated in)

has a positive effect on the focal firm’s business

performance.

Maxim-based trust within the cooperationrelationship as a critical resource for business

performance

It is not only cooperation experience (quantitative

aspect), but also – as we argue even to a greater

extent – the coordination mechanism within the

cooperation relationship (qualitative aspect) that

makes a cooperation relationship and its partners

successful. When talking about the coordination

mechanism, a major issue is the kind of power

Cooperation, Trust and Performance 471



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applied in order to coordinate the participants’

behaviour within the field of cooperation.

Consequently, the following question arises:

how can cooperators ensure that their partnersbehave according to the rules stipulated ex ante?

There are three ideal-type coordination powers

for the purpose of reducing the latitude foropportunistic behaviour. They apply to each real

inter-firm transaction relationship in a certain

combination (Adler, 2001; Bradach and Eccles,

1989). (1) The market mechanism (which is based

on isolated actors who pursue short-term advan-tages) cannot be the dominant coordination

mechanism in a transaction relationship which

strives for joint long-term profit (e.g. Ouchi, 1979).

Following the logic of the ideal-type market,

economic actors would opt for short-term profits,

making long-term arrangements impossible in the

first place. (2) Behavioural determination byhierarchical governance (e.g. Wathne and Heide,

2000) is equally limited: credible sanction threats

(Buckley and Casson, 1988) on an actor’s part

require sufficient sanctioning power (Backhaus,

1992; Kaas, 1992a, 1992b), ex ante knowledge

(Eberl, 2004; Shane 1994) and ex post percept-

ibility (Dwyer, Schurr and Oh, 1987) of the

behaviour a cooperation partner is expected to

show. The coordinative power of hierarchical

governance is limited especially in those areas of

inter-firm cooperation where objectives cannot be

programmed at all, or only at prohibitively hightransaction costs (Ring and Van de Ven, 1992).

Thus, in transaction relationships which are

complex and pursue long-term goals, neither

market and hierarchy nor hybrids of these two

coordination powers (Borys and Jemison, 1989)

can govern the actors’ behaviour. Transaction

cost economics ignore the fact that, beyond a

certain level of complexity, market and organiza-

tion failure impede exchange relations (Furubotn,

2001; Roessl, 1996). In direct contrast to Baucus,

Baucus and Human (1996), we argue that this

deficit cannot be remedied by mixing elements of those two ideal-type coordination mechanisms or

by delimiting contractual and relational obliga-

tions as proposed by Williamson (1991). From

a transaction cost perspective, trust cannot be

accepted as an alternative because of its neo-

institutional roots, which preclude non-rational

behaviour and with it the acceptance of uncer-

tainty and trust. However, highly complex transac-

tion relationships obviously arise in real business

life (Roessl, 1996) and form the focus of our

investigation. This insight opens up the view to a

third coordination mechanism which has slowly

but steadily made its way into economic thinking.This third ideal-type coordination mechanism is

particularly well suited in situations of both market

and organizational failure. It is referred to as‘relational contracting’ (Carson, Madhok and Wu,

2006), ‘trust’ (Eberl, 2004), ‘self-commitment’

(Frey and Osterloh, 2002) or ‘Selbstverpflichtung ’

(Fink, 2005; Sydow and Windeler, 2000).

In society, trust was identified as a strongcoordinative power long ago. In the early twen-

tieth century, the Austrian writer Egon Friedell

postulated: ‘The most reliable way to make people

decent is to take them for decent’ (Friedell, 1983).

However, research on the coordinative role of trust

within economic transactions did not become a

serious issue for economists until the 1960s, whenresearchers such as Bator (1958), Ouchi (1979),

Dwyer, Schurr and Oh (1987), Rotter (1971) and

Wurche (1994) highlighted the shortcomings of the

two classic coordinative powers of market and

hierarchy, and pointed to the catalytic effect of

trust. After that first in-depth introduction to the

phenomenon of ‘trust’ in economic theory, trans-

action cost economics gained the upper hand,

especially in the Anglo-Saxon world, widely

ignoring the crucial role of trust in economic

transactions. The subsequent debate focused on

hybrids between market and hierarchy. Whereasauthors such as Zenger and Hesterly (1997) as well

as Holland and Lockett (1997) detected the rising

importance of these hybrid coordination mechan-

isms, Williamson (1991) asserted their infeasibility

and ineffectiveness. Again, these obviously incon-

sistent standpoints opened up the field for trust to

be viewed as a key to the controversy. Meanwhile,

European economists in particular pressed ahead,

theorizing on the role of trust in the economic

context (e.g. Osterloh and Weibel, 2000; Roessl,

1994, 1996) and providing a profound basis for a

new global research effort on the unresolved issueof coordination. In his integrative work, Adler

(2001) reintroduces trust as ‘a third increasingly

significant coordination mechanism’.

How can trust effectively coordinate the

cooperation partners’ behaviour? Following Ring

and Van de Ven (1992), Osterloh and Weibel

(2000) or Adler (2001), we define trust as the

response of an actor (an individual, not an

organization) to subjective uncertainty regarding




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the interaction partner’s behaviour. In order to

understand the coordinative power of trust, it is

necessary to differentiate between instrumental

trust and maxim-based trust. Instrumentaltrust refers to the exogenous conformity of the

cooperation partner’s behaviour with the explicit

and implicit rules of cooperation. This kind of trust draws its coordinative power from sanction

and control. The awareness that the cooperation

partner may face disadvantages in the case of

defective behaviour motivates the actor to place

instrumental trust in him.By contrast, maxim-based trust is intrinsically

motivated, drawing its coordinative power

from the actor’s self-commitment to a maxim

(Kant, 1998).

How does a maxim-based trust relationship

evolve? The evolution of maxim-based trust

can be described as a reciprocal, self-reinforcingprocess. It starts with the actors mutually

conceding self-commitment to their cooperation

partners, which is based on socialized informa-

tion on the cooperation partner (e.g. reputation

and perceived behavioural history). In this

situation, the actors feel compelled to provide

risky advance performance (irreversible commit-

ments such as specific investments). In this way,

they communicate their own self-commitment in

a credible manner. Based on congruent expecta-

tions, both sides perform acts of maxim-based

trust, which in turn reinforce the initial expecta-tions and justify additional acts of maxim-based

trust (Fink, 2005). They forgo individual short-

term profits in favour of common long-term

profits. As a result, a maxim-based trust relation-

ship evolves. Although latitude for opportunistic

behaviour still exists in such transaction relation-

ships, restricting the participants’ inclination to-

ward opportunistic behaviour reduces behavioural

uncertainty. Therefore, the complexity of the

transaction relationship and the risk of betrayal

can be partly absorbed. Thus, maxim-based trust

provides a key to double contingency and preventsthe development of social dilemmas such as the

prisoner’s dilemma from the very outset. In this

way, maxim-based trust enables transaction rela-

tionships which would otherwise not take place

due to high behavioural uncertainty.

The prototypical transaction relationship,

which can only be realized by interaction partners

who place maxim-based trust in one other, is

heterarchic cooperation. Heterarchic cooperation

relationships can be defined as voluntary and

organized relationships between autonomous and

equal partners who mutually adapt their behaviour

to each other, thus bringing about the possibilityof one-sided defection. Thus, if two actors who

are ready to commit to each other enter into a

heterarchic cooperation relationship, we can as-sume that a maxim-based trust relationship has

been established between them (Fink, 2005).

The competence necessary to build up and

maintain such complex cooperation relationships

enables the cooperators to handle behaviouraluncertainty. Consequently, they are able to capi-

talize on additional opportunities which their

competitors have to go without. Profits will rise

in cases where only few firms are capable of

carrying out a transaction due to their control

over rare, inimitable resources (e.g. Barney, 1986,

1991). In fact, firms will then be able to apply thishighly sophisticated and efficient coordination

power to realize profitable transaction relation-

ships in risky contexts. The competitive advan-

tage of being able to develop and manage

cooperation relationships coordinated by max-

im-based trust has a positive effect on the focal

firm’s business performance. Therefore, the

following hypothesis can be postulated:

H2: The more behavioural coordination relies

on maxim-based trust in a cooperation rela-

tionship, the better the performance of the

focal participating company will be.

The superiority of maxim-based trust as a

contributor to business performance

Both cooperation experience and the ability to

establish and maintain a cooperation relationship

coordinated by maxim-based trust can be seen as a

firm’s resources. From this perspective, cooperation

experience can be expected to have a weaker effect

on the firm’s business performance, as it is easier to

acquire and less bound to the socio-psychosocialprofile of the actors in charge of cooperation

management. As a result, the competitive advan-

tage of cooperation experience is easier to imitate

and therefore of less value to the company.

Accordingly, we propose the following hypothesis:

H3: Maxim-based trust within a cooperation

relationship has a stronger effect on the

business performance of the focal firm than

cooperation experience.




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Methods

Sampling frame and response rates

The quantitative part of this paper is based on a

survey carried out in Austria, the Czech Republic

and Slovenia between March and July 2006. A

total of 10,000 (Austria, 2000; Czech Republicand Slovenia, 4000 each) SMEs (i.e. up to 249

employees) was selected from national databases

(Austria, AURELIA; Czech Republic, ALBER-

TINA; Slovenia, IPIS) as a stratified random

sample. The region (province) and size of each

business (number of employees) were employed ascriteria for stratification. Stratification by region

(total number of SMEs of a region 2000 or

4000 divided by the total number of SMEs in the

country) was employed in order to avoid over- or

under-representing certain regions in the sample.

Stratification by the ‘size of business’ ratio – 1:3:1for micro businesses (up to nine employees), small

businesses (10–49 employees) and medium-sizedbusinesses (50–249 employees), respectively – was

employed in order to avoid over-representing

micro businesses, which show a low propensity

to cooperate.

The questionnaire was addressed to the owner/

manager of each SME, as – in view of the topic of

the survey – knowledgeable informants were not

available below that hierarchical level.

The survey yielded a total of 458 (4.6%)

returned questionnaires: 119 from Austria (re-sponse rate 6.0%), 199 from Slovenia (response

rate 5.0%) and 140 from the Czech Republic

(response rate 3.5%). A check based on telephone

interviews with a random sample of 45 non-

respondents from each country as well as a test

comparing early, middle and late responders

showed no systematic bias. Of these 458 SMEs,

303 (91 Austrian, 150 Slovenian and 62 Czech)

indicated that they participate in cooperation

activities. Therefore, these 303 businesses serve

as the basis for our analyses in this paper. The

breakdown of the sample into cooperatingand non-cooperating businesses showed that the

propensity to cooperate was significantly lower in

the Czech sample (44.3%) than in the Slovenian

(75.4%) and Austrian (76.5%) samples (w2543.12;

p50.000).

The sample for analysis consists of 49 (16.2%)

micro, 153 (50.5%) small and 101 (33.0%)

medium-sized enterprises across a broad range of

industries. Approximately 43% of the businesses in

the sample belong to the service sector, some 37%

belong to the production sector, and the remaining

20% can be attributed to the trade sector.

Variables and measures

We used four-point scales (‘completely agree’,

‘inclined to agree’, ‘inclined to disagree’ and‘completely disagree’) to measure all items.

Cooperation experience. Cooperation experi-

ence was measured using the number of coopera-tion relationships the business had had at the

time of the survey (1, one; 2, two; 3, more than

two), the duration of the cooperation arrange-

ment with the firm’s main partner (1, up to one

year; 2, one to three years; 3, three to five years; 4,

five to ten years; 5, ten to 20 years; 6, more than

20 years), and participation in an internationalcooperation arrangement (0, no international

cooperation; 1, international cooperation).

Maxim-based trust. As outlined above, mutual

trust can only evolve if both interaction partners

are willing to make a commitment to each other.

Therefore it is necessary to measure the level of

maxim-based trust on both actors’ sides. As the

questionnaire survey was kept anonymous in

order to increase the return rate, we could not

match up the partners in cooperation systems. As

a result, we had to apply a combination of direct

and indirect measurements.

On the side of the cooperation partner surveyed,

we measured the level of self-commitment to the

cooperation relationship as a manifest expression

of the maxim-based trust placed in his/her

cooperation partner (direct measurement). On

the side of the cooperation partner not surveyed,

maxim-based trust could be observed by identify-

ing whether a heterarchic cooperation relationship

had been established. Based on the argumentation

outlined above, the existence of a heterarchiccooperation relationship allows for interference in

the second cooperation partner’s level of maxim-

based trust (indirect measure).

As the individual items in maxim-based trust

were considered independent from one another,

we calculated a formative index.

Self-commitment. Our conceptualization of the

self-commitment phenomenon is based on the




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work of Roessl (1994, 1996) and comprises

several dimensions. The present cooperation

partner’s reputation provides information on the

extent to which he/she has met the expectationsof his/her interaction partners in the past (Roessl,

2001), thus affecting an actor’s decision to

commit to the relationship. Familiarity is basedon personal impressions and provides informa-

tion about the specific cooperation partner in the

ongoing relationship (Roessl, 1994). Another

indicator is the cooperation partner’s perceived

behavioural history. In particular, the stability of the maxims underlying perceived behaviour is

crucial here. Self-commitment requires observa-

ble behavioural norms which remain stable

over time and therefore allow a prognosis of

the cooperation partner’s future behaviour

(Luhmann, 1989; Roessl, 1994). As perceived

behavioural history is not based on personalimpressions, it has to be obtained actively. The

source of this information is socialized impres-

sions of others. If the cooperation partners build

up a personal relationship, the relationship will be

enriched by personal connotations, taking the

relationship to a higher level. Such personal

relationships between self-committed cooperators

have no short-term perspective (Becaerra and

Gupta, 2003; Kanter, 1995; Roessl, 1994).

A further dimension of self-commitment is the

actor’s self-restriction; the actor confines himself/

herself to cooperative behaviour. He/she takesthe risk that his/her expectations concerning the

cooperation partner’s behaviour might be

frustrated. Therefore, the willingness to take a

risk is another dimension of self-commitment.

Self-commitment also requires frustration toler-ance, i.e. the actor’s belief in his/her ability to

cope with situations resulting from a frustration

of expectations (Roessl, 1994). An actor’s self-

commitment represents self-exposure. Further-

more, self-commitment calls for a leap of faith

(e.g. advance performance) which the interaction

partner might capitalize on by defecting from therelationship unexpectedly.

Heterarchic cooperation relationship. We mea-

sure heterarchic cooperation based on (1) structural

characteristics and (2) interpersonal characteristics,

which are a suitable means of delimiting this

specific form of cooperation relationship from

other forms of inter-firm cooperation relationships.

Structural characteristics delimit from ‘informal

relationship’: whereas informal relationships are

characterized by a minimum share of elements

typical of organizations, heterarchic cooperationrelationships are organized relationships and can

therefore be characterized as systems (Plassmann,

1974).Structural characteristics also delimit from ‘hier-

archical cooperation’ and ‘concentration’: the

essential difference here lies in the form of

coordination in the transaction relationship.

Coordination based on mutually adjusted behaviouron the part of autonomous and equal elements in a

heterarchic cooperation relationship (Strohmayer,

1996) is delineated from coordination based on

power, control and sanction in a hierarchy system

(Pleitner and Roessl, 1995). Consequently, each

cooperator has the possibility of one-sided defection

in the heterarchic cooperation relationship at anytime (Plassmann, 1974). Hierarchical systems have

a rigid structure of competences with a portfolio of

sanctions attached, whereas heterarchic relation-

ships are characterized by voluntary participation

and inputs (Strohmayer, 1996).

The interpersonal characteristics typical of heter-

archic cooperation arrangements are captured

using four indicators. The measure communication

quality describes how the cooperators communicate

with each other. Communication quality is crucial

for exchanging opinions and thoughts between the

subsystems of the cooperation relationship. Onlyhigh-quality communication ensures that all parti-

cipants have the opportunity to contribute their

ideas and safeguard their interests. In this way,

high communication quality contributes to high

relationship quality (e.g. Becaerra and Gupta,

2003; Kanter, 1995).

The measure resilience captures those aspects of

the cooperation relationship which only move to

the centre of attention in times of crisis. How

robust the cooperation relationship is in times of

crisis and how elaborated problem-solving compe-

tences are determine the relationship quality to agreat extent (De Búrca, Fynes and Roche, 2004).

The measure transparency captures the coopera-

tion partners’ openness concerning the internal

processes of their firms. To what extent do the

cooperation partners provide such insight, and how

well and accurately informed do they feel? Trust

can only evolve if the cooperation partners deal

with each other openly and honestly. The more the

actor knows about his/her interaction partner, the




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less risk he/she will perceive in the trust relation-

ship, and the more likely a heterarchic cooperation

relationship will evolve (De Búrca, Fynes and

Roche, 2004).

Once a heterarchic cooperation relationship

has been established and the self-reinforcing

process has started, relationship intensity rises

automatically.

For the purpose of measuring the components of

maxim-based trust, we used four-point scales

(‘completely agree’, ‘inclined to agree’, ‘inclined to

disagree’ and ‘completely disagree’). Table 1 shows

Table1. Measurement of maxim-based trust

Maxim-based

trust

Variables Sources Items

Self-commitment Reputation Roessl, 2001 Before establishing the cooperation relationship, I

had heard good things about my cooperation partner

Familiarity Roessl, 2001 I have cooperated with my present cooperation

partner in the pastPerceived

behavioural history

Roessl, 2001 Before establishing the cooperation relationship, I

gathered information about my cooperation partner

Personal relationship Becaerra and Gupta, 2003;

Kanter, 1995

I also meet my cooperation partner in my private life

No short-term

perspective

De Búrca, Fynes and Roche,

2004; Rusbult, Martz

and Agnew, 1998

With the cooperation relationship, I aim to realize

noticeable success as fast as possiblea

Self-restriction Osterloh and Weibel, 2000;

Roessl, 1994

I attune my behaviour to the aims of the cooperation

relationship

Willingness to

take a risk

McLain and Hackman, 1999 I am willing to take a risk

Frustration

tolerance

Luhmann, 1989;

Roessl, 1994

I am convinced that I am able to cope with setbacks

Self-exposure Roessl, 1994 The cooperation has a strong influence on the successof my company

Leap of faith Luhmann, 1989 In order to make cooperation work, one has to take

a leap of faith with one’s cooperation partner, even

though this involves risk

Heterarchic cooperation relationship

Structural

characteristics

Organized

relationship

Plassmann, 1974;

Roessl, 1994

My cooperation partners and I talk about the

cooperation

Mutually adjusted

behaviour

Roessl, 1994 My cooperation partner and I take joint action in the

area of cooperation

Autonomy Troendle, 1987 I have remained legally independent within the

cooperation arrangement

Equality Ruehl, 1980 In decisions regarding the cooperation relationship,

the opinion of each cooperation partner is equally

important

Possibility of

one-sided defection

Plassmann, 1974 By behaving opportunistically, I could damage the

cooperation relationship

Voluntariness Strohmayer, 1996 I can terminate the cooperation relationship

unilaterally at any time

Interpersonal

characteristics

Communication

quality

Becaerra and Gupta, 2003;

De Búrca, Fynes and

Roche, 2004;

Kanter, 1995

I can get right to the point when speaking with my

cooperation partner

Resilience De Búr ca, Fynes and

Roche, 2004

Discussions with my cooperation partner always

result in a solution

Transparency De Búrca, Fynes and

Roche, 2004

I know the internal processes in my cooperation

partner’s company

Relationship intensity Lorenz, 1999 Since its establishment, the cooperation relationship

has gained intensity

aReverse item.




9/15

the measurement of maxim-based trust and its

components.

Performance. Our measurement of entrepreneur-

ial performance is based on an adapted formal

structure of the balanced scorecard (Kaplan

and Norton, 1996). In this way, we can ensure

integrated coverage of the latent variable ‘perfor-

mance’ within the framework of our empirical

investigation.

As the individual performance items were

considered to be independent from one another,

we calculated a formative index. Table 2 shows

the variables employed along with their sources

and the items used. As in the case of maxim-

based trust, we used four-point scales (‘com-

pletely agree’, ‘inclined to agree’, ‘inclined to

disagree’ and ‘completely disagree’) to measureall items.

Control variables. We used firm size (number of

employees), firm age (years of existence) and

country of origin (0, Austria as a traditional

market economy; 1, Czech Republic and Slovenia

as emerging market economies) as control vari-

ables, as these characteristics can also have an

impact on performance.

Analysis

We employed hierarchical linear regression anal-

ysis to test our hypotheses. In the first step of

the analysis, the control variables were inserted

into the model, using business performance as

the dependent variable. In the next two steps,

the variables cooperation experience and maxim-based trust were added to the model, and

incremental R2 and F tests of statistical signifi-

cance were evaluated.

Results

The means, standard deviations and correlations

of the variables are displayed in Table 3. First, it

is striking that (with the possible exception of the

duration of cooperation and maxim-based trust)the correlations between the independent vari-

ables are relatively low, ranging from –0.185 to

0.177. However, the positive correlation between

the duration of cooperation and maxim-based

trust meets our expectations, as it supports the

argument that trust can normally only evolve and

increase with time (e.g. Jones and George, 1998;

Lafontaine and Kaufmann, 1994). With regard to

the correlations between the independent vari-

Table2. Measurement of performance

Performance Variables Sources Items

Endogenous

perspective

Employee qualifications Kaplan and Norton, 1996 Since the establishment of the cooperation

relationship, the qualifications of my

employees have improved

Employee turnover Gomes, Yasin and Lisboa,

2006; Hatch and Dyer, 2004

Since the establishment of the cooperation

relationship, fewer employees have leftmy company

Exogenous

perspective

Customer satisfaction

Share of regular

customers

Anderson and Sullivan, 1993;

Anderson, Fornell and

Lehmann, 1994

Bruhn, 1996; Horovitz

and Panak, 1993;

Quartapelle and Larsen, 1996

My customers are always satisfied with

my products and services

Most of my customers are regular customers

Market development Kaplan and Norton, 1996 Since the establishment of the cooperation

relationship, I have enlarged my market share

Share of regular suppliers Riffner and Weidelich, 2001 Most of my suppliers are regular suppliers

Financial

perspective

Cash flow development Kaplan and Norton, 1996 Since the establishment of the cooperation

relationship, I have boosted my cash flow

Sales development Since the establishment of the cooperation

relationship, I have boosted my salesDevelopment of

investment activity

Since the establishment of the cooperation

relationship, I have boosted my investments




10/15

ables and the dependent variable, maxim-based

trust shows by far the highest positive correlation

with performance, followed by the duration

of the cooperation. The negative correlation

between firm age and performance is also notice-

able. This negative correlation may result from

the fact that our performance measure, which is

based on dynamic indicators, tends to favour

younger, more flexible businesses in dynamicmarkets in comparison to more established,

experienced businesses in stable environments.

In order to check for multicollinearity in the

regression analysis, the variance inflation factor

was calculated for the individual predictors. All

of the values are just over 1 and thus far below

critical levels. In order to test the hypotheses,

we first added the control variables (see Table 4,

column 2, for results), then the cooperation

experience variables (column 3) and finally the

maxim-based trust variable (column 4).

The control variables (firm size, firm age and

country) explain 3.6% of the variation in per-

formance, and the model only attains statistical

significance at the 90% level in this step (p50.057).

Nevertheless, while firm size and country do not

show a significant impact on performance,

firm age turns out to be a significant predictor(p50.034) for firm performance. As pointed out

above in the discussion of correlations, the

relationship between firm age and performance

is negative. Once again, we repeat our assump-

tion that this outcome is partly caused by the fact

that we measured performance using dynamic

performance indicators.

In the next step of the regression analysis, the

cooperation experience variables (number of

Table3. Means, standard deviations and correlations

Mean Standard deviation (1) (2) (3) (4) (5) (6) (7) (8)

(1) Performance 34.11 4.90 1

(2) Firm size 2.31 0.92 0.079 1

(3) Firm age 2.52 0.81 0.147** 0.150*** 1

(4) Country

(Austria versus CZ/SI)

0.70 0.46 0.090 0.004 0.185*** 1

(5) Number of cooperation

relationships

1.90 0.90 0.100 0.112* 0.018 0.158*** 1

(6) Duration of cooperation 3.20 1.35 0.204*** 0.017 0.114* 0.008 0.177*** 1

(7) International cooperation

(yes/no)

0.48 0.50 0.161*** 0.039 0.106* 0.127** 0.080 0.028 1

(8) Maxim-based trust 61.92 6.16 0.421*** 0.062 0.019 0.050 0.107* 0.128* 0.008 1

*p40.1; **po0.05; ***po0.01.

Table 4. Performance: control variables, cooperation experience and maxim-based trust (n5303)

1 2 3 4

Control

variables

Cooperation experience,

control variables

Maxim-based trust, cooperation

experience, control variables

b SE b SE b SE

Firm size 0.101 0.370 0.097 0.363 0.074 0.332

Firm age 0.151** 0.429 0.162** 0.423 0.159** 0.386

Country (Austria versus CZ/SI) 0.062 0.744 0.050 0.740 0.066 0.675

Number of cooperation relationships 0.046 0.379 0.017 0.346

Duration of cooperation 0.212*** 0.248 0.165*** 0.228

International cooperation (yes/no) 0.124* 0.662 0.124** 0.604

Maxim-based trust 0.398*** 0.049

R2 0.036* 0.104*** 0.258***

Adjusted R2 0.022* 0.077*** 0.232***

DR2 0.036* 0.068*** 0.154***

Standardized regression coefficients are displayed in the table.*p40.1; **po0.05; ***po0.




11/15

cooperation relationships, duration of coopera-

tion, and existence of international cooperation)

are reviewed beyond the base model. These three

variables account for an additional 6.8% of the variation in performance (p50.002) and

increase the statistical significance of the model

(p5

0.001). Explained variance thus attains avalue of 10.4%. Aside from the negative relation-

ship between firm age and performance already

discovered in the control variables block, the

existence of international cooperation (p50.068)

and particularly the duration of cooperation(p50.002) show significant positive relationships

with business performance.

This means that Hypothesis 1 can partially be

supported. Cooperation experience in the form of

the duration of cooperation and – with some

limitations due to lower significance – also the

existence of international cooperation make apositive contribution to business performance.

In the final step of our analysis, we added

maxim-based trust to the regression model. The

integration of this variable increases the explained

variance considerably by 15.4% (p50.000) to

25.8% (p50.000). Maxim-based trust shows a

highly significant positive relationship with busi-

ness performance (p50.000). In combination,

these outcomes support Hypotheses 2 and 3:

maxim-based trust has a positive influence on

business performance (Hypothesis 2) and has a

stronger effect on business performance thancooperation experience (Hypothesis 3). In fact,

maxim-based trust explains a higher percentage of

the variance in performance (15.4%) than all the

other variables in the final model combined.

Discussion

Empirical analysis shows that cooperating

firms with more cooperation experience are more

successful. The longer these firms manage to

maintain their cooperative relationships, thebetter the firms perform. Moreover, the inter-

nationality of cooperation relationships contri-

butes to firm performance. Interestingly enough,

the data do not indicate that the firms’ number of

cooperation relationships has a significant impact

on performance. This can be interpreted as a first

indication of the greater success contribution

of continuous, systematic and focused investment

in the development of an ongoing cooperation

relationship which lies within the core of one’s

business and widens the firm’s strategic portfolio.

In contrast, the development of cooperation

relationships with ever-changing partners doesnot contribute to firm performance. From this

perspective, the firm’s number of cooperation

relationships alone is not a decisive factor. More-over, the number of cooperation relationships

maintained seems to be influenced by firm size,

as increasing company size automatically leads to

an increasing number of external contacts. At the

same time, a larger number of external contactsincreases the probability that cooperatively co-

ordinated transaction relationships will evolve.

Although the results show that cooperation

experience makes a positive contribution to the

performance of cooperating firms, we were also

able to identify a far stronger success factor

for cooperators: maxim-based trust. Inter-firmcooperation relationships are characterized by

double contingency and are therefore a suitable

context for empirical research into the effect of

maxim-based trust on cooperators’ performance.

In this context, we showed that maxim-based trust

is a resource that substantially contributes to the

cooperating firms’ performance. We interpret this

trust based on maxims as a critical resource which

is especially difficult to imitate and may thus

serve as a possible key to developing competitive

advantages. Firms that manage to evolve maxim-

based trust possess a capability which enablesthem to manage cooperation relationships which

could not be coordinated otherwise. They can

seize and capitalize on opportunities which their

competitors have to forgo due to the high com-

plexity and uncertainty involved.

We can sum up our findings as follows. It is not

so much the quantity of cooperation experience,

but the quality of the cooperation relationship

that accounts for its value to the company. These

findings concur with those of Lavie (2006), who

highlights the special value of the nature of inter-

firm relationships.

Implications

As cooperation experience has proved to be a

success factor for cooperating firms, it seems

beneficial to build up the appropriate management

capacities in due time. From our results, we have

learned that it is not the number of cooperation




12/15

relationships a firm has experienced but the

intensity of these relationships that contributes to

future success. The management capacities relevant

to coordinating cooperative relationships and theresulting firm performance obviously grow along

with the challenge. This idea leads to the assump-

tion that, in order to boost business performance,entrepreneurs have to venture into increasingly

demanding transaction relationships. We argue

that with rising cooperation experience firms build

up a sophisticated and effective instrument for

handling behavioural uncertainty within coopera-tion relationships. The challenge of coordinating

cooperation relationships grows with longer time

horizons and higher internationality, as these

factors increase complexity and uncertainty. More

demanding settings force cooperating firms to

improve their coordination instruments, thus creat-

ing a more valuable resource. Those who invest inthe development of their cooperation relationship

and push the limits within this relationship will

outperform those who only dare to act within the

secure, familiar territory of the past.

Our results show that the more a cooperation

arrangement relies on maxim-based trust, the more

successful it is. However, a firm cannot establish a

maxim-based trust cooperation relationship over-

night in order to boost its performance. First, the

firm needs to find a like-minded partner who is

willing to commit to the relationship to the same

extent as itself. This is not an easy task, as self-commitment can only be communicated by leaps

of faith and mutual-based trust can only evolve if

the interaction partner does not capitalize on this

self-exposure. The tricky thing is the fact that

self-exposure is only legitimated by its result. Thus,

one can never be sure to succeed with this kind

of advance. On the one hand, this dilemma is

unpleasant for the actor who is willing to develop a

maxim-based trust relationship with a cooperation

partner, as it forces the actor to take a risk that

cannot be legitimated beforehand. On the other

hand, it also serves as a safety mechanism as itavoids instrumentalizing maxim-based trust: once

you fake it, you break it.

Second, such relationships typically grow over

time. The evolution process of maxim-based

trust cannot be accelerated by force. It rests on

a long-term strategy aimed at building up a

good reputation and ensuring a positive per-

ceived history. Additionally, it requires a long-

lasting personal relationship with the cooperation

partner in the course of which one has credibly

communicated a willingness to take risks, a

sufficient level of frustration tolerance and readi-

ness for self-restriction and self-exposure.It is easy to see that, although maxim-based

trust is a possible key to boosting firm perfor-

mance, it is not a management tool suitable forshort-term intervention. As the word maxim

implies, it is more a constant socio-psychological

predisposition underlying the entrepreneurs’

decisions and actions.

However, as our results identify maxim-basedtrust as a possible key to competitive advantage

and enhanced business performance in the long

run, researchers as well as practitioners may

regard it as an important phenomenon in the

cooperation context. Our findings may contribute

to freeing this social phenomenon from its

frequent characterization as utopian and out of touch with reality. In this respect, our results

challenge theoretical concepts that adhere to the

concept of homo oeconomicus. This may provide

support for those who have appropriate resources

at their disposal and are willing to develop a

maxim-based trust relationship. The more max-

im-based trust cooperation relationships are

realized in highly uncertain and complex con-

texts, the less society suffers from the conse-

quences of market and organization failure.

In the field of SME cooperation, our results

challenge arguments based on transaction costeconomics alone, such as those put forth

by Williamson (1991), as well as explanations

of exchange transactions based on rational

choice theory (as argued by Axelrod (1984), for

example). The results also provide empirical

support for more holistic concepts of inter-firm

transactions as proposed by Roessl (1994),

Osterloh and Weibel (2000), Adler (2001) and

Carson, Madhok and Wu (2006), to name just a

few examples.

In light of our empirical results, further

research in this field is certainly worthwhile,both from a scientific as well as a practical point

of view.

Limitations and directions for futureresearch

First, the moderate response rate has to be qualified

in light of the fact that surveys on SMEs (especially




13/15

in transition economies) typically show low response

rates. This difficulty is exacerbated when surveys

address sensitive issues such as trust in cooperation

partners. However, our check for non-response biasas well as a test comparing early, middle and late

responders showed no systematic bias, thus indicat-

ing robustness of the results presented.Second, although the survey instrument was

tested in a 2004 survey of over 600 Austrian

SMEs and the consistency of the results with

those of the study at hand indicates reliability,

further use in other contexts would be required inorder to legitimate the claim of reliability. This

could likewise demonstrate whether our findings

are valid in other geographical and cultural

contexts as well as in a sample of large companies.

Third, our one-sided measurement of maxim-

based trust is justified by theoretical arguments and

therefore does not compromise the empirical results.However, the measure should be subjected to

further validation in qualitative as well as quanti-

tative studies using pairs of cooperators. Pairing

would further increase the reliability of the data, but

at the same time represents a major challenge with

regard to the anonymity of the respondents and,

consequently, the resulting response rate.

Fourth, as we employed a cross-sectional design,

we cannot rule out reverse causality. In order to

enhance clarity in this regard, a longitudinal

study would have to be conducted. Such a design

would also yield even higher explained variance inperformance.

However, we are convinced that by presenting

innovative lines of argumentation and current

empirical results, we have been able to enhance

our understanding of how SME cooperation

arrangements generally contribute to business

performance, and to add another piece to the

puzzle regarding the special value of maxim-

based trust relationships.

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Matthias Fink is an assistant professor at the Institute for Small Business Management and

Entrepreneurship at the WU Vienna University of Economics and Business where he also earned his

PhD in Small Business Management. Furthermore, he is a senior researcher at the Research Institute

for Co-operation and Co-operatives and Visiting Professor at Vaasa University (Finland) and

Universidad Auto ´ noma de Barcelona (Spain). Mr. Fink is lecturer at several European universities.

He holds a three-year fellowship (APART – Austrian Program for Advanced Research andTechnology) granted by the Austrian Academy of Sciences. His main research interests are

interorganizational cooperation, trust in the economic context, internationalization of SMEs,

community-based entrepreneurship and entrepreneurial marketing.

Alexander Kessler is an associate professor and head of the Competence Center Entrepreneurship at

the Institute for Management and Entrepreneurship at FHWien University of Applied Sciences of

WKW, Vienna. Furthermore he is a lecturer and researcher at the Institute for Small Business

Management and Entrepreneurship at the WU Vienna University of Economics and Business and a

visiting professor at the Masaryk University in Brno, Czech Republic. He earned his master’s

degree, his PhD and his Habilitation in business administration at WU Vienna University of

Economics and Business. His main research interests are business start-up and development,

corporate entrepreneurship, entrepreneurship in countries of transition, international comparisons

in entrepreneurship research, family business research, and trust in SME cooperation relationships.



Cooperation, Trust and Performance

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