Academic journal article Entrepreneurship: Theory and Practice

Government Agency and Trust in the Formation and Transformation of Interorganizational Entrepreneurial Networks

Academic journal article Entrepreneurship: Theory and Practice

Government Agency and Trust in the Formation and Transformation of Interorganizational Entrepreneurial Networks

Article excerpt

This article examines the role of trust and government agency in the creation and evolution of interorganizational cooperation among entrepreneurial ventures in general and the influence of trust on development trajectories in particular. The multiple-case approach used draws on five in-depth case studies adopting a focal firm perspective. Trust is shown to play a critical role in the formation, maintenance, and transformation of interorganizational cooperative relationships; whereas its absence results in discontinuation. Moreover, the results suggest that government agency may unintentionally destroy existing, well-functioning, interorganizational cooperative arrangements.


Human agency, social interaction, and personal relationships are strongly influenced by the degree of perceived trust between the interacting parties (Fox, 1974). A decrease in trust raises opportunism and vice versa. Well-developed mutual trust thus helps reduce the perceived risks of entering a new business venture with other business partners. Interorganizational cooperation is carried out along a continuum with formalized strategic alliances and joint ventures at one end and informal and loosely coupled networks at the other. Formal arrangements typically resort to contracts to protect themselves against perceived threats of opportunism and/or parasitic behavior, whereas informal arrangements seek control through trust and/or social regulatory mechanisms. Trust is increasingly being recognized as an important relational mechanism in economic exchange (Axelrod, 1984; Granovetter, 1985).

An interorganizational arrangement refers to socially embedded cooperative constellations formed through the interaction between individual and collective actors (Sydow & Windeler, 2003). Such interorganizational networks can be long-term, single-, or multi-purpose arrangements among distinct and profit-oriented organizations, giving participants an advantage over competitors outside the network (Jarillo, 1988). It has been long acknowledged that interfirm trust is important to the formation and management of such arrangements (Andaleeb, 1995; Parkhe, 1993a); in particular, among small manufacturing companies where trust plays a pivotal role (Powell, 1990). Archetypical interorganizational relationships tend to be vertical and to span the value chain. Such relationships are well-documented (e.g., Ford et al., 1998; Huggins, 2000), whereas horizontal relationships between actual and potential competitors have received much less attention (Bengtsson & Kock, 1999; Brown & Butler, 1995), and little is known about the actual roles of relational mechanisms, particularly trust. Using a multiple-case study approach, this article addresses the role of trust in the formation and transformation of interorganizational networks, extending existing theory on the role of trust in horizontal relationships. More specifically, it investigates the consequences of government intervention on networking behavior and seeks to uncover the underlying mechanisms that interact to produce continued network behavior.

Forms and Types of Interorganizational Networks

Owing to the many competing conceptualizations, it is necessary to explore the different forms of network to be able to capture important differences in their contingencies and outcomes (Ebers & Jarillo, 1997-1998). In this regard, a key issue is to identify which governance mechanisms are most efficient and how they shape network development.

The last few decades have seen renewed interest in the potential for agglomeration economies and innovation for producing highly dynamic and concentrated industrial activity. This research tradition is rooted in the theory of physical proximity and the notion of localized clustering of companies, which assumes that concentrations of small firms facilitate local economies of scale and scope (Krugman, 1993). According to some authors, agglomeration leads to mutually complementary relationships, to interorganizational dependencies, and to a critical mass of skills

in a locality, which facilitates the movement and turnover of staff simultaneously with reducing transaction costs resulting from the division of labor and input-output flows (Brusco, 1982; Storper & Scott, 1995). …

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