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European Management Journal 35 (2017) 523e537

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European Management Journal

journal homepage: www.elsevier.com/locate/emj

Untangling the trustecontrol nexus in international buyeresupplier exchange relationships: An investigation of the changing world regarding relationship length

Maximilian Holtgrave a, *, Ann-Marie Nienaber b, Carlos Ferreira c

a Research Centre “Trust and Communication in a Digitized World” at Muenster University, Geiststrasse 24e26, 48151 Muenster, Germany b Centre for Trust, Peace and Social Relations at Coventry University, Priory Street, Coventry CV1 5FB, United Kingdom c Centre for Business in Society at Coventry University, Priory Street, Coventry CV1 5FB, United Kingdom

a r t i c l e i n f o

Article history: Received 30 December 2015 Received in revised form 22 June 2016 Accepted 16 September 2016 Available online 28 September 2016

Keywords: Control Trust Performance Relationship length Textile value chain

* Corresponding author. E-mail addresses: [email protected]

[email protected] (A.-M. Nienaber) uk (C. Ferreira).

http://dx.doi.org/10.1016/j.emj.2016.09.005 0263-2373/© 2016 Elsevier Ltd. All rights reserved.

a b s t r a c t

Control and trust are the primary governance mechanisms buying organizations rely upon to organize and maintain their collaborative exchange relationships with foreign suppliers. But the question of how control and trust interrelate and should be pursued seems entangled and practical advice remains largely elusive. Based on empirical data on 212 recently- and long-established buyer-supplier exchange re- lationships in the textile industry, we test the relationship between three practices of interorganizational control (output, process, and normative controls), two dimensions of interorganizational trust (compe- tence and goodwill trust), and relationship performance. Using structural equation modelling, we demonstrate the value of controls for building and validating trust to depend as much on the specific control practice deployed and dimension of trust observed, as on the temporal stage of the exchange relationship. Moreover, we reveal distinct performance effects of the different control practices and dimensions of trust. Herewith, this study allows for a comprehensive understanding of the trust-control nexus in collaborative exchange relationships between buyers and their foreign suppliers. Addressing managers, we reveal how normative controls can be used to build trust and promote performance at the start of the relationship, whereas output controls need time to reach their full potential. Process controls, in turn, are found to have adverse effects.

© 2016 Elsevier Ltd. All rights reserved.

1. Introduction

Across industries, organizations have responded to the chal- lenges imposed by rapidly changing environments and fierce competition by building international and world-spanning collab- orative relationships with foreign suppliers (Gereffi & Memedovic, 2003). Such collaborative relationships are characterized by rela- tional forms of exchange and a long-term focus of the parties involved (Srinivasan, Mukherjee, & Gaur, 2011). In fact, competition no longer only concerns the individual organization but, rather, involves buyer-supplier dyads (Doney & Cannon, 1997). As a po- tential downside, interdependencies between buyers and their foreign suppliers are a natural cause of collaboration and both

-muenster.de (M. Holtgrave), , [email protected].

parties incur significant risks, such as coordination failures or opportunism by the exchange partner (Palmatier, Dant, & Grewal, 2007). In fact, organizations who realize that their foreign sup- plier cheats on them might overnight find their very existence challenged (Bachmann, 2001). Faced with such risk, buyers frequently rely on two governance mechanisms to facilitate collaboration and secure performance: interorganizational control and trust (Das & Teng, 2001). As controlling for every detail and contingency that may arise within the buyer-supplier relationship seems nearly impossible, buyers are forced to rely on trust (Malhotra & Murnighan, 2002; Williamson, 1996). However, trust may not completely eliminate the need for control as the risk of misplaced trust and foreign supplier opportunism may be too high for the buyer to accept (Das & Teng, 2001). Hence, interorganiza- tional relationships frequently rely on both governance mecha- nisms. Yet, the question of how control and trust interrelate and should be pursued by organizations in long-term collaborative re- lationships appears entangled. As Bachmann (2001) notes, “while

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there are numerous examples in the literature where control chases out trust, there are equally as many examples of trust and control being complementary, or going hand in hand” (p. 5). This apparent lack of clarity seems especially troublesome, given the challenges associated with exerting control or building trust in buyer-supplier relationships across national, cultural, and institutional boarders (Aulakh, Kotabe, & Sahay, 1996).

A prime example can be found in the textile industry between Western buyers and their foreign suppliers. Facing high competi- tion, volatile demand, and short product life-cycles albeit long production and distribution lead times, textile buyers are largely inflexible in changing supply sources at short notice and thus highly dependent on their existing suppliers (De Brito, Carbone & Blanquart, 2008; Chen & Fung, 2013). Recent industry scandals such as the collapse of the Rana Plaza factory building in Bangladesh, a supplier for Irish Primark and German C&A, or the dumping of toxic wastewater in Indonesia by suppliers for US apparel retailers Gap, Banana Republic, and Old Navy, have demonstrated an apparent lack of control of Western buyers over their foreign suppliers, deteriorated trust in buyer-supplier re- lationships, and led to calls for rigorous regulation (Stevens, MacDuffie, & Helper, 2015). Hence we focus on the collaborative exchange relationships between textile buyers and their foreign suppliers in order to untangle the trust-control nexus. However, as several industries exhibit similar structures (e.g., garments, foot- wear, toys, handicrafts, and consumer electronics; Gereffi & Memedovic, 2003), we believe our study to be of even wider relevance.

We aim to reconcile conflicting findings on the interrelationship of control and trust, which we believe largely trace back to research that has investigated different pieces of a broader puzzle. First, prior research has mostly focused on select practices of control, suggesting that differences in empirical findings may relate to a diverging nature of the specific aspects of control examined (Weibel, Den Hartog, Gillespie, Searle, Six, & Skinner, 2016). In particular, studies have predominantly investigated formal controls such as performance appraisals, close monitoring or binding con- tracts (e.g., Poppo & Zenger, 2002), while neglecting more informal approaches and social constitutions (Bachmann, 2001). Second, even though conceptual and empirical research has repeatedly demonstrated trust to be multidimensional, a majority of studies has narrowly focussed on one sub dimension or overlooked its distinctions altogether (Malhotra & Lumineau, 2011; Puranam & Vanneste, 2009). Third, prior research has largely taken a static view on interorganizational control and trust (Fulmer & Gelfand, 2012; Nooteboom, Berger, & Noorderhaven, 1997). From social ex- change theory, however, we know that the value of controls in terms of building trust depends on the temporal stage of the buyer- supplier relationship. In sum, a limited scope of analysis regarding the different practices of control, dimensions of trust, and temporal stages may be the cause for seemingly conflicting findings (Bachmann, Gillespie, & Priem, 2015; M€ollering, 2013).

Hence, we aim to extend prior research and untangle the effects of controls on trust by (1) distinguishing between the different practices of interorganizational control (output, process, and normative controls), (2) distinguishing between the different di- mensions of interorganizational trust (competence and goodwill), and (3) evaluating these relationships by contrasting two points in time (recently versus long-established buyer-supplier relationships). We argue that this nuanced approach is needed to provide a comprehensive assessment of the effects of controls on trust in an interorganizational setting.

Furthermore, even though we look back at decades of research,

the effective performance contribution of interorganizational trust and control is far from clear (Das, 2006). This raises the practical questions if and when, which type of control buyers should emphasize in order to build and validate trust in their foreign suppliers and maximize the exchange relationship's return. Acknowledging that research on this matter has largely failed to provide concrete advice (Thorgren & Wincent, 2011), we further extend the scope of our study to include the effects of control and trust on buyer-supplier relationship performance.

We derive our findings from empirical data on 212 interorga- nizational relationships, using structural equation modelling. In sum, our study demonstrates marked differences in the three control practices’ effects on competence and goodwill trust and between recently and long-established relationships. Moreover, we reveal distinct performance effects of the different control practices and trust dimensions. Our study thus contributes to management literature and practice in several ways: First, our study is the first to offer a fine-grained analysis of interorganizational control and trust. As such, it contains nuanced insights on which control practices effectively build buyer trust in the foreign supplier and which are detrimental to trust. Second, we draw from social ex- change theory in order to investigate temporal distinctions in the interplay of control and trust over repeated exchange, character- ized by relationship length. Combined, these findings allow us to untangle the trust-control nexus in recently and long-established buyer-supplier exchange relationships. Finally, our results reveal disparate performance effects for the different control practices and dimensions of trust, allowing us to give concrete advice to management on which governance mechanisms to emphasize.

2. Theoretical background

2.1. Control and trust

Social exchange theory aims at explaining how social structures, built in the context of repeated exchanges, serve to both constrain and enable actors in exchange relationships (Cook, Cheshire, Rice, & Nakagawa, 2013; Emerson, 1976). A history of successful exchanges between buyer and supplier may lead to high-quality relationships between the parties involved (Cropanzano & Mitchell, 2005; Srinivasan et al., 2011). Our study analyses buyer-supplier re- lationships in the textile industry. Here, as in many similar in- dustries, buyers depend on foreign suppliers to fulfil important parts of the production process (Chen & Fung, 2013; Nooteboom et al., 1997). In this light, textile buyers tend to place greater con- fidence in the exchange relationship when they perceive an adequate level of control over their foreign supplier and/or trust the supplier (Das & Teng, 2001). Both, control and trust, operate on a similar principle of influencing the foreign supplier in its selection of behavioural alternatives. However, whereas control is aimed at preventing negative supplier behaviour via rewards and sanctions (Dekker, 2004), trust works on the basis of positive assumptions regarding the supplier's actions (Bachmann, 2001). Not surpris- ingly, the question of how control and trust interrelate and should thus be pursued by buying organizations has been subject to an extensive debate amongst scholars. Specifically, control and trust have been argued to act as substitutes as well as complements (Dekker, 2004). Historically, research has favoured the substitution perspective, advocating for an inverse relationship between control and trust (e.g., Argyris, 1952; Ghoshal & Moran, 1996; Thompson & Warhurst, 1998). However, the limitations of either governance mechanism have been found to cause most interorganizational relationships to rely on a mixture of control and trust (Bachmann,

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2001). In support of this observation, the complementarity perspective perceives control as an important precondition for trust (e.g., Castelfranchi & Falcone, 2000; Costa & Bijlsma- Frankema, 2007; Stevens et al., 2015). In fact, these scholars argue that by introducing objective rules and clear measures, controls may help establish a “track record” for those who do their jobs well (Goold & Campbell, 1987). As previously stated, we suspect these conflicting views and findings to originate from comparing different pieces of a broader puzzle, which is formed by the mul- tiple practices of control, dimensions of trust, and temporal stages.

In buyer-supplier exchange relationships, controls are used first and foremost to monitor the supplier's conduct, forming a struc- tural assurance for achieving objectives (Turker & Altuntas, 2014). By providing warning signals and implementing corrective actions, interorganizational controls thus ensure the buyer-supplier re- lationship's functional ability to achieve its goals (Whitley, 1999). However, the application of controls is wider in that they may also be deployed to align objectives, foster information, and coordinate activities, targets, and norms between the exchange parties (V�elez, S�anchez, & �Alvarez-Dardet, 2008). Interorganizational controls typically comprise several control practices, which are often sub- sumed in terms of output, process, and normative controls (Weibel et al., 2016). Of these, the literature regards output and process controls as formal measure-based practices of control, whereas normative controls are seen as an informal value-based practice (Das & Teng, 1998, 2001; Inkpen & Currall, 2004). Regarding the two formal control practices, via output controls buyers may compare the foreign supplier’s products or services with pre- defined targets (Snell, 1992), whereas process controls are used to monitor whether the foreign supplier's way to achieve its results is in accordance with predetermined procedures (Anderson & Oliver, 1987). Lastly, normative controls (Shapiro, 1987) describe a practice driven by informal norm enforcement, such as peer pressure. Here, the buyer emphasizes the embedding of organizational culture, norms, and values to encourage desirable supplier behaviour and outcome (Doz, 1996; Inkpen & Currall, 2004). Although many studies have suggested that organizations frequently rely on a combination of control practices, so far they have oftentimes been investigated separately in the literature (Weibel et al., 2016).

Like control, the concept of trust has been explored at length in the social sciences and management literature (e.g., Fulmer & Gelfand, 2012; Nienaber, Hofeditz, & Romeike, 2015). In their re- view, Rousseau, Sitkin, Burt, and Camerer (1998) define “confident expectations” and a “willingness to be vulnerable” as critical components of trust (see also Siebert, Martin, Bozic, & Docherty, 2015). Following Dodgson (1993), trust on the interorganizational level is engrained in organizational modes of behaviour and man- ifests itself in a collective belief in the mutual benefits of the specific collaboration. As such, it allows the interorganizational relationship to continue even when trusting interpersonal relationships break down. The exact nature of trust seems elusive, as scholars have suggested multiple classifications and analysed various specific empirical cases (Bachmann, 2001). Rempel, Holmes, and Zanna (1985) identified predictability, dependability, and faith as the essential components of trust. Similarly, Lewicki and Bunker (1995) distinguish between calculus-based, knowledge-based, and identification-based trust. McAllister (1995) argues trust to be either based on cognition or affection. Nooteboom (1996) notes that “[t]rust may concern a partner's ability to perform according to agreements (competence trust), or his intentions to do so (goodwill trust)” (p. 990). This basic dichotomy is reflected in much on the literature on trust, with competence also being denoted as “ability” or “expertise” (Mayer, Davis, & Schoorman, 1995) and goodwill

referred to as “responsibility” (Barber, 1983), or “integrity” (Mayer et al. 1995). Hence, in keeping with prior research and to offer a nuanced view, we follow the lead of Nooteboom (1996), Das and Teng (2001), and Malhotra and Lumineau (2011), amongst others, in adopting these two dimensions of trust. Accordingly, a buyer's trust in the foreign supplier's competence draws from a positive perception of its ability to perform as expected, representing an active choice in whom, in which respect, and under which cir- cumstances to place trust (Lewis & Weigert, 1985). Competence trust therefore requires knowledge as the basis from which the buyer derives the confidence or positive expectations to rely on the foreign supplier to live up to its obligations. Trust in the foreign supplier's goodwill, in turn, is based on a positive perception of its intention to behave in a trustworthy manner (Nooteboom, 1996). Herewith, goodwill trust shapes the buyer's willingness to be vulnerable. As social exchange theory suggests, both perceptions of competence and goodwill are built in the context of repeated exchange.

2.2. Relationship length, control and trust

Acknowledging the need to offer a more nuanced analysis of control and trust, we deem it important not to ignore the dynamic processes of building trust. Despite of persuasive evidence that organizational behaviour is likely affected by past experiences and future expectations (e.g., Poppo, Zhou, & Ryu, 2008), prior research has mostly tended to conceptualize organizational controls in a static manner (Nooteboom et al., 1997). Challenging the dominant logic, Halinen, Salmi, and Havila (1999) showed that in open-ended relationships, controls and trust are subject to a continuous and joint evolution. In early stages of the relationship, the dependencies and risks associated with dealing with the foreign supplier are largely ambiguous (Bachmann, 2001). In this initial situation, con- trols likely build trust by providing buyers with a basic level of predictability and protection against the arbitrariness of the ex- change relationship (Zaheer, McEvily, & Perrone, 1998). However, this does not imply that controls become redundant in later stages. To the contrary, when the information obtained through interor- ganizational controls is positive, the corresponding levels of competence and goodwill trust are likely to encourage an expan- sion of the collaboration (Inkpen & Currall, 2004). As the buyer then intensifies joint activities with the foreign supplier, the increased scope and complexity of the relationship also raises interdepen- dence, which in turn likely affects the buyer's perception of infor- mation needs and trust (Doz, 1996).

By closely monitoring the foreign supplier's actions, controls transfer information about the exchange partner to the buyer (Sako, 1992). Through repeated interaction over a longer period of time, a pool of evidence is thereby compiled that amounts to a supplier- specific track record on which to assess its behaviour (Dekker, 2004; V�elez et al., 2008). Moreover, in order for controls to facili- tate mutual problem solving and dispute resolution, agreement on standards, expectations, and targets is needed which also requires a certain experience with the specific relationship (V�elez et al., 2008). As Dodgson (1993) revealed in his analysis of successful technology collaborations, considerable time and effort is necessary to develop controls that are adjusted to the specific relationship's needs and capable of establishing trust between the partners. In sum, theo- retical and empirical evidence suggest that the constant evolution of the interorganizational exchange relationship demands for a parallel development of control and trust. As the relationship progresses, the buyer may simultaneously pursue an increase in both trust and control (Das & Teng, 1998). However, magnitude and

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significance of controls in terms of building trust are likely to improve as the relationship matures.

2.3. Performance, control, and trust

As Das (2006) notes, inconsistent practical advice regarding the effectiveness of controls and trust in interorganizational relation- ships may trace back to limited academic knowledge about the performance contributions of both governance mechanisms. In order to shed light onto the performance effects of the multiple control practices and trust dimensions, we build on the conceptual reflections of Das and Teng (2001). Under the guise of “risk perception”, the authors highlight two types of risk which buyers must manage in their relationship with foreign suppliers: relational risk and performance risk. While relational risk refers to the probability and consequences of unsatisfactory collaboration with the supplier, performance risk refers to the possibility that the predicted results are not achieved, despite satisfactory collabora- tion between buyer and supplier. Jointly, these risks impair the exchange relationship's financial and non-financial basis for suc- cess, the two facets of buyer-supplier relationship performance (Venkatraman & Ramanujam, 1986).

The vast majority of research acknowledges controls as essential for satisfactory performance of interorganizational relationships (Das & Teng, 2001; Geringer & Hebert, 1989). Monitoring of the foreign supplier directs the buyer's attention towards key perfor- mance indicators and thereby enables the buyer to react quickly when performance risk rises above a certain threshold (Das & Teng, 2001). Further, control practices also inform the buying organiza- tion about the supplier's conduct and thereby may prevent major surprises. In this sense, control can also effectively reduce the perceived risk of unsatisfactory cooperation. Additionally, Anderson and Oliver (1987) note that controls remove incentives for the foreign supplier to sacrifice long term for immediate results and thereby help ensure long-term collaboration, providing the basis for performance of the partnership.

Besides control, trust is also demonstrably related to perfor- mance (for an overview see Fulmer & Gelfand, 2012). Trust in buyer-supplier relationships is based on the expectation that the foreign supplier will reciprocate the buying organization's efforts in time. When trust exists, the buyer holds the belief that its supplier has the competence and/or goodwill to contribute to the partner- ship, thereby producing an “as-if-reality”, which enables collabo- rative behaviour (M€ollering, 2006). This means that trust acts as a heuristic which provides “a degree of structure and stability to one's perception of a situation or relationship” (Lewicki & Brinsfield, 2011, p. 110), thereby motivating exchange parties to commit and contribute to joint goals (Ring & Van de Ven, 1994). As a result, trust is effective in lowering the buyer's concerns about both unsatisfactory behaviour of the foreign supplier and unsatis- factory results of the buyer-supplier relationship. Hence, trust stands to be relevant in situations where buyers are dependent on their supplier, as it enhances the predictability of the supplier's actions (Gulati, 1995). Concordantly, Zaheer et al. (1998) argue that trust has the potential to lower negation costs and defuse possible conflicts between the partners and thus, enhance partnership performance. Moreover, interorganizational trust is likely benefi- cial in situations of high environmental uncertainty, as is the case in the textile industry that we investigate (Gereffi & Memedovic, 2003). Environmental uncertainty demands speedy and respon- sive decisions and close collaboration between the partners in or- der to react and adapt to external changes. As trust increases information sharing (Dyer & Chu, 2003), allows for a smoother

synchronization of critical tasks (Krishnan, Martin, & Noorderhaven, 2006), and enables exchange parties to implement necessary changes without worrying about partner opportunism (Puranam & Vanneste, 2009), it also enhances the partnership’s adaptive capacity. In sum, the cooperative behaviour facilitated by higher levels of interorganizational trust provides economic ben- efits and has repeatedly been shown to improve partnership per- formance (e.g., Collins & Smith, 2006; Johnston, McCutcheon, Stuart, & Kerwood, 2004).

3. Hypotheses

3.1. Control and trust

Given the nature and scope of the exchange relationships be- tween buyers and their foreign suppliers, organizations frequently rely on both controls and trust. Hence, we adopt a rational approach and carefully assume that all three control practices are potentially valuable preconditions of building buyer trust in the foreign sup- plier's competence and goodwill, although in different ways. Thus, we assume that output controls relate positively to competence trust, since the risk of insufficient results of the supplier's efforts is a key reason for the buyer to rely on this practice (Das & Teng, 1998). By closely monitoring the foreign supplier's output, the buyer re- ceives reliable information regarding its supplier's resources and abilities, thus laying the foundation for competence trust to emerge. Further, feeding back information about deviances to both parties creates transparency in terms of targets and requirements (V�elez et al., 2008). Output controls thus may help form a common understanding, which should bolster trust in the supplier's re- sponsibility and non-opportunistic behaviour. Hence, output con- trols may also foster trust in the foreign supplier's goodwill (Doney, Cannon, & Mullen, 1998). In sum, we hypothesize:

H1. Output controls are positively related to buyer trust in the foreign supplier's a) competence and b) goodwill.

Process controls require active involvement by the buying or- ganization, whereby this practice provides the input which the foreign supplier needs in order to achieve the required goals (Aulakh et al., 1996). Moreover, close monitoring of the foreign supplier's behaviour allows the buyer to reliably ensure that the supplier produces high quality goods and services (Weibel et al., 2016). Thus, process controls effectively build a foundation for competence trust to develop. By tightly embedding the buying organization into the supplier's operations, process controls may further signal the buying organization's commitment to the part- nership, which should in turn diminish the foreign supplier's motivation for opportunistic behaviour (Aulakh et al., 1996). As process controls tend to result in supportive yet bureaucratic relationship, they may also help align the goals of both parties (Aulakh & Gencturk, 2000). We therefore believe process controls to ultimately foster goodwill trust as well. Accordingly, we hypothesize:

H2. Process controls are positively related to buyer trust in the foreign supplier's a) competence and b) goodwill.

Normative controls, in turn, influence the foreign supplier's behaviour through repeated interpersonal interactions, which likely leads to systemized and shared organizational values and cultural blending (Aulakh & Gencturk, 2000). As Das and Teng (2001) note, a sense of confidence in the exchange partner's goodwill is an implicit result of this control practice. In line with the authors' notion, research has found empirical support for a positive

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relationship between normative controls and goodwill trust (e.g., Aulakh et al., 1996). Additionally, establishing normative controls essentially means interacting with the foreign supplier, which provides additional opportunity to monitor by which standards the supplier conducts business. According to Das and Teng (2001), the control practice thereby lays the foundation for trust in the ex- change partner's resources and abilities. We therefore believe normative controls to ultimately foster competence trust. Thus, we hypothesize:

H3. Normative controls are positively related to buyer trust in the foreign supplier's a) competence and b) goodwill.

3.2. Relationship length, control, and trust

One of the least explored aspects of the relationship between control and trust is the role of relationship length (Lui & Ngo, 2012; Thorgren & Wincent, 2011), which we believe may provide a possible explanation for conflicting findings concerning their interplay. Regarding the general level of a buyer's trust in its foreign supplier, social exchange theory suggests that the assessment of a supplier's competence and goodwill requires the buyer to have a certain level of interaction with the supplier. To this effect, Rousseau et al. (1998) conclude that trust is history-dependent and may change in the course of repeated exchange. Accordingly, scholars have argued that trust becomes stronger over time, which implies that the longer a buyer has known and worked with a certain supplier, the greater the level of trust in this supplier (Lewicki, McAllister, & Bies, 1998; Thorgren & Wincent, 2011). As confident expectations of positive supplier behaviour and the buying organization's willingness to be vulnerable are grounded in repeated positive experience (Child & M€ollering, 2000), we expect trust to gradually become stronger as the buyer-supplier relation- ship grows older. We thus expect:

H4. Relationship length is positively related to trust, such that long-established buyer-supplier relationships exhibit greater levels of buyer trust in the foreign supplier's a) competence and b) goodwill as opposed to recently established ones.

As the exchange relationships evolve, buyers learn about the distinct characteristics of their foreign suppliers (Lewicki et al., 1998) and are likely to adjust their level of control and trust accordingly (Inkpen & Currall, 2004). In particular, output controls may foster the buyer's trust in the supplier. However, in order to reliably assess the foreign supplier's competence, a buying orga- nization needs constant monitoring of the supplier's work output over a certain period of time. Following social exchange theory and given that repeated monitoring of the foreign supplier's output has provided satisfactory results, this implies that trust in the supplier's competence will be greater the more exchanges between the partners have occurred (Kumar, Scheer, & Steenkamp, 1995). Moreover, output controls require the development of standards and measures by mutual agreement of buyer and supplier. Over repeated exchanges, this process of aligning objectives between the partners establishes a forum for debate (V�elez et al., 2008) and improves communication (Das & Teng, 2001). Thus, as buyer- supplier relationships mature, the practice of output controls is likely to gradually strengthen the buyer's trust in the foreign sup- plier's goodwill. We therefore hypothesize:

H5. Relationship length positively moderates the output controls e trust relationship, such that long-established buyer-supplier re- lationships exhibit a greater positive effect of output controls on

buyer trust in the foreign supplier's a) competence and b) goodwill as opposed to recently-established ones.

The practice of process controls draws on the buying organiza- tion's capacity to closely monitor the foreign supplier's operations in order toassessits levelofcompetence (Weibel et al.,2016). However, effectively monitoring the foreign supplier's processes requires formalization of control practices (Poppo & Zenger, 2002) as well as familiarity and full understanding of its operations, both of which are likely to improve over the course of repeated interaction. Drawing from social exchange theory, we thus believe monitoring via process controls to improve as the exchange relationship ma- tures, strengthening competence trust. Moreover, coordinating their processes over repeated exchange, buyer and supplier are bound to improve communication and develop a common under- standing of goals, which acts as a sign of commitment and allows for a better prediction of the foreign supplier's behaviour (Sako & Helper, 1998). We therefore believe the positive effect of process controls on goodwill trust to be stronger in later stages of the buyer- supplier relationship as well. In sum, we hypothesize:

H6. Relationship length positively moderates the process controls e trust relationship, such that long-established buyer-supplier re- lationships exhibit a greater positive effect of process controls on buyer trust in the foreign supplier's a) competence and b) goodwill as opposed to recently-established ones.

Normative controls influence the foreign supplier's behaviour via establishing a common system of values and norms (Aulakh & Gencturk, 2000). This, however, requires socialization of the ex- change partners in the form of repeated social interaction (V�elez et al., 2008). Following social exchange theory, normative con- trols should intensify in the context of repeated exchanges, grad- ually reducing the buying organization's uncertainty and raising goodwill trust as the relationship progresses (Anderson & Weitz, 1989). Further, the process of developing shared norms and values involves regular interpersonal contacts between the part- ners, which in turn allows the buyer to learn about its supplier (Aulakh et al., 1996). Over time, these interactions should thus in- crease the buyer's knowledge about the foreign supplier's specific resources and abilities (Sako, 1992). We thus expect normative controls to exhibit greater effects on the buyer's trust in the sup- plier's competence in later stages of the exchange relationship as well, and hypothesize:

H7. Relationship length positively moderates the normative con- trols e trust relationship, such that long-established buyer-supplier relationships exhibit a greater positive effect of normative controls on buyer trust in the foreign supplier's a) competence and b) goodwill as opposed to recently-established ones.

3.3. Performance, control, and trust

As output controls require formal standards in order to monitor and assess the foreign supplier's work output, they seem especially suited to tackle the performance risks inherent to buyer-supplier relationships. Further, the process of reaching such standards re- quires close collaboration of buyer and supplier, which should raise transparency and lower relational risks as well (Pangarkar & Klein, 2004). Process controls, in turn, reduce performance risks by influ- encing the foreign supplier towards operating in a way that favours the buying organization's long-term objectives (Aulakh & Gencturk, 2000). Additionally, the transparent nature of process controls renders opportunistic supplier behaviour unlikely and thus lowers

M. Holtgrave et al. / European Management Journal 35 (2017) 523e537528

relational risks (Aulakh & Gencturk, 2000). Finally, as normative controls are based on a process of socialization and consensus making, they raise the exchange partners' commitment to the relationship (Das & Teng, 2001), thereby deterring opportunistic supplier behaviour and reducing relational risks. Further, since the consensus-making process is likely to result in an agreement upon reasonable goals, performance risks will be lowered as well. In sum, we therefore assume all three organizational control practices to lower the risks inherent to buyer-supplier relationships and provide a sound basis for the partnership's performance. We hypothesize:

H8. a) Output controls, b) process controls, and c) normative controls are positively related to buyer-supplier relationship performance.

Besides controls, trust is likely to influence the performance of the exchange relationship. For buying organizations, a perception of the foreign supplier's competence is based on the distinct re- sources and capabilities of the specific supplier (Das & Teng, 2001). These resources and capabilities ultimately provide the basis for achieving the desired results and thus drive the perception of performance risks (Dyer & Chu, 2003). Similarly, trust in the foreign supplier's goodwill, is essentially based on good faith in the sup- plier's future actions and is derived from a supplier's reputation for dealing fairly and having good intentions (Das & Teng, 2001; Gulati, 1995). Thus, goodwill trust relates to less perceived relational risks of cooperation. From the buyer's perspective, trust in the partner's competence and goodwill implies that the foreign supplier will fulfil its obligations and behave predictably (Johnston et al., 2004), and thereby provides the basis for long-term success and partner- ship performance. Thus, we hypothesize:

H9. Buyer trust in the foreign supplier's a) competence and b) goodwill are positively related to buyer-supplier relationship performance.

Fig. 1 shows our conceptual framework.

Fig. 1. Conceptua

4. Research method

4.1. Sampling and data collection

We chose the supply chain exchange relationships between German textile firms and their foreign suppliers as our empirical setting. The textile industry is considered the world's second largest industry (Kuo, Hsu, Huang, & Gong, 2014) and, as shown in Fig. 2, organized around three main parts: (1) multinational garment retailers (buyers), (2) garment manufacturers (sup- pliers), and (3) ancillary suppliers (suppliers to garment manu- facturers) (Baskaran, Nachiappan, & Rahman, 2012). As costs are a decisive driver of purchasing decisions, most of the labour intensive garment manufacturing is done in low-wage countries (Bruce & Daly, 2011). However, linkages between the different parts of the value chain are extensive. As fashion products change continuously, demand is volatile, and short product life-cycles meet upon long production and distribution lead times, the global textile value chain is particularly susceptible to risk factors (for an overview see Routroy & Shankar, 2014). The distinctive characteristics of the industry require high levels of coordination and collaboration between the various players (Tuncel & Alpan, 2010), which makes it particularly difficult for garment retailers (buyers) to quickly change their supply sources (Chen & Fung, 2013). Hence, we believe matters of control and trust to be especially relevant for buyers and important drivers of relation- ship performance in this setting. Moreover, recent industry scandals have demonstrated the challenges of exerting control over foreign suppliers and led to a deterioration of trust (Stevens et al., 2015), providing further practical relevance for investigating the textile industry. However, we believe our results to be of wider relevance as several industries exhibit similar structures (e.g., garments, footwear, toys, handicrafts, and consumer electronics; Gereffi & Memedovic, 2003).

For our study, we identified a distinct sample by relying on the membership lists of three German trade groups. We e-mailed each textile distributor or retailer that was a member in one of the trade

l framework.

(3) Ancillary suppliers

(2) Garment manufacturers b

(1) Garment retailers a

Fig. 2. The textile value chain.

M. Holtgrave et al. / European Management Journal 35 (2017) 523e537 529

groups a cover letter with a link to our online survey. In our cover letter, we asked for the manager or head of the purchasing department to inform us about the organization's exchange rela- tionship to its two most recently and longest-established foreign suppliers. Managers and the heads of the purchasing departments are knowledgeable about their organization's relationships with its suppliers, and thus appropriate respondents to our survey. Further, previous studies have repeatedly demonstrated consis- tent perceptions of exchange relationships between buyers and suppliers (e.g., Poppo et al., 2008; Zaheer et al., 1998). Four weeks later, a second mailing was conducted and a randomly selected number of organizations were called to increase response rate. Matters of control and trust concerning foreign suppliers are a very sensitive issue to the textile industry e particularly in the recent wake of repeated industry scandals (Stevens et al., 2015). Hence, our research design had to emphasize the respondents' anonymity, which is why we did not inquire into the exact geographical location of the suppliers. Given the specifics of the textile value chain, we can assume that these suppliers are to a large extend located in Eastern-European, Northern-African, and Asian low-wage countries (De Brito et al., 2008; Routroy & Shankar, 2014).

Altogether we contacted 507 textile distributors or retailers of which 123 participated in our survey. However, 17 questionnaires had to be discarded due to missing information or in the course of identifying statistical outliers1 (Little, 1988), resulting in a response rate of 20.9% or n ¼ 106 organizations or, as each respondent rated the organization's relationship to the two most recently and longest-established foreign suppliers, 212 cases. Of these organi- zations, 62.3% are exclusively garment retailers, 28.3% are garment retailers that to a small extend also engage in manufacturing (these rated the exchange relationship to their ancillary suppliers), 4.7% are buyers of technical textiles, and another 4.7% are buyers that cannot unequivocally be allocated. The answers predominantly stem from decision makers, with 51.9% managers, 28.3% heads of purchasing departments, and 19.8% others.

Nonresponse assessment. Following Poppo et al. (2008), we tested for nonresponse bias in two ways. First, we compared early (the first quarter) and late (the last quarter) respondents on various key variables such as satisfaction with and dependency on their foreign suppliers and the suppliers' level of homogeneity. Using multivariate analysis of variance (MANOVA), we found no signifi- cant differences on these measures (Wilks' L ¼ 0.976; F ¼ 0.762; p ¼ 0.518). Subsequently, we compared both groups on a number of demographics such as number of employees, financial turnover, and total number of suppliers. Again using MANOVA, we found that the profiles of early and late responders do not significantly differ (Wilks’ L ¼ 0.980; F ¼ 0.550; p ¼ 0.650). Combined, these results provide evidence that nonresponse bias appears to be negligible in our study (Armstrong & Overton, 1977).

1 Statistical outliers were identified based on the total number of an organiza- tion's suppliers and the average length of the buyer-supplier relationship. Roderick J. A. Little's Chi-Squared-Statistic implies that values are missing completely at random (p < .05). Missing values were estimated and imputed using the EM- Algorithm (Little, 1988).

Common method assessment. We use the same key respondents to collect information on both independent and dependent vari- ables. Even though this is rather common in interorganizational research (e.g. Lui & Ngo, 2012; Poppo et al., 2008), common method bias might be of concern. In accordance with Podsakoff and Organ (1986), we address this issue in two ways. Following Podsakoff, MacKenzie, Lee, and Podsakoff (2003), we gave distinct instructions on how to fill out our survey, assured our respondents of their and their foreign suppliers' anonymity, applied well- established and thoroughly tested items with alternating scales, included reverse-coded items, and separated exogenous from endogenous variables. Additionally, we assessed whether com- mon method bias exists by means of two statistical procedures. First, we performed the Harman one-factor test, which loads the total number of items into a principal component factor analysis (Podsakoff & Organ, 1986). Analysing our data revealed a solution that explains 68.93% of the variance and whereby factor 1 ac- counts for only 27.23%, thus indicating no bias in our data (see Appendix A, Table A1). We further controlled for the effects of a common latent methods factor following the procedure described by Liang, Saraf, Hu, and Xue (2007), creating a specific method factor that comprises all items used in the different measurement models and calculating the amount of each item's variance explained by the method factor. Our analysis shows that the in- dicators' substantive constructs all explain a substantially greater amount of the indicators' variances than the method factor does (Williams, 2003), meaning that common method bias appears to be of no particular concern (see Appendix A, Table A2). However, due to our research design we cannot entirely rule out the pos- sibility of bias and thus encourage readers to bear this limitation in mind.

4.2. Measurements

Our measures are based on relevant literature and stated in Appendix B, Table B1. The questionnaire items were refined through two one-hour in-depth interviews with key managers of the textile industry as well as three representatives of different trade groups. Based on these interviews, a small number of items were revised in order to enhance clarity. All measurement scales, unless specifically indicated otherwise, were measured with a five-point Likert scale (1 ¼ strongly disagree; 5 ¼ strongly agree). Following the common classification criteria of Jarvis, MacKenzie, and Podsakoff (2003), all latent variables are measured reflectively.

Controls. Consistent with previous work (e.g., Das & Teng, 2001), we use the scale of Aulakh et al. (1996) to measure a buyer's reli- ance on the practices of output, process, and normative controls. Accordingly, we use two four-item scales to assess the degree to which the buying organization controls its foreign supplier's out- comes and operations and a three-item scale to measure the extent of shared values and philosophies between the parties.

Trust. Our measurement of competence and goodwill trust relies on the items developed by Mayer and Davis (1999) and is in line with previous studies such as those of Searle et al. (2011) or Weibel et al. (2016). Accordingly, trust in the foreign supplier's competence

M. Holtgrave et al. / European Management Journal 35 (2017) 523e537530

and goodwill are each measured by six items, which asses the buyer's perception of the supplier's skills and whether the supplier adheres to a set of acceptable principles (Mayer et al., 1995).

Partnership performance. As Dagger, Danaher, and Gibbs (2009) note, a measure of interorganizational performance needs to encompass quality and quantity related variables that are attrib- utable to the buyer-supplier exchange relationship. Accordingly, we measure financial and non-financial aspects of organizational per- formance relative to the foreign supplier's contribution. Our mea- surement is adopted from Song, Im, van der Bij, and Song (2011) and comprises the three financial performance measures profit- ability, sales growth, and return on investment. Additionally, we included three items from Ismail and King (2005) that measure market share, customer satisfaction and firm image. These perceptual measures have repeatedly been shown to capture the broad concept of non-financial performance (e.g., Homburg, Krohmer, & Workman, 1999). We capture relationship perfor- mance relative to the foreign supplier's contribution, as overall organizational performance would be inadequately allocable to a specific exchange relationship.

Relationship length. Regarding an exchange relationship, the terms ‘recently’ and ‘long-established’ are relative to the average duration of all of a buying organization's exchange relationships. Thus, they might differ between buyers depending on the organi- zation's age and the average age of its suppliers. Therefore, we abstained from defining a definite maximum or minimum length of exchange relationships and inquired into the two most recently and two longest-established exchange relationships of each buying organization instead. By inquiring about two exchange relation- ships for each buyer, we broaden the basis of our data and lower the risk of bias or random error. Thus, relationship length is captured via one dummy variable, coded 1 for a buyer's rating of a long- established relationship, and 0 otherwise.

Contextual measures. Although we focus on matters of control and trust, previous research suggests that several other variables may affect the performance of buyer-supplier relationships. Spe- cifically, empirical evidence suggests that performance is closely linked to organizational size (e.g., Doney & Cannon, 1997), which we measure based on the buying organization's number of em- ployees and financial turnover in the previous fiscal year. We hereby rely on five-point scales, using intervals that resemble the European Union's recommendation 2003/361/EG for distinction between small, medium-sized and large entities. Further, we con- trol for the buying organizations' overall number of suppliers, which Kaplan and Minton (1994) have shown to reflect the buyer's dependence on a single exchange relationship (cf., Ongena & Smith, 1997). We measure the number of suppliers via one self-reported

Table 1 Correlations, means, and standard deviations.

Constructs Mean s.d. 1 2 3

1. Supplier heterogeneity 3.57 0.93 1.00 2. Competence trust 3.99 0.74 �0.07 1.00 3. Organizational size 2.59 1.26 0.08 0.02 1.00 4. Goodwill trust 3.44 0.80 �0.15* 0.60*** 0.03 5. Normative controls 3.07 0.84 �0.04 0.35*** �0.03 6. Number of Suppliers 57.70 117.40 0.14* 0.02 0.38* 7. Output controls 3.98 0.80 0.16* 0.22** 0.32* 8. Relationship performance 3.39 0.54 0.23*** 0.33*** �0.05 9. Process controls 3.17 1.11 �0.11 �0.10 0.26* 10. Relationship length 0.50 0.50 0.00 0.34*** 0.00

Note: n ¼ 212. *p � 0.05; **p � 0.01; ***p � 0.001.

metric item assessing the total number of the buying organiza- tion's suppliers. Lastly, we factor in the perceived level of supplier heterogeneity, which acts as proxy for the buyer's belief that all of its suppliers may be treated similarly and ought to create the po- tential for standardized control practices (Doney & Cannon, 1997). Supplier heterogeneity is measured on a five-point Likert scale that captures the perceived (dis-)similarity of the buying organization's suppliers.

4.3. Measure validation

We assessed the reliability and validity of our measures following the guideline of Anderson and Gerbing (1988). All criteria of validity and reliability are reported in Appendix B, Table B1. First, exploratory factor analysis for all items of the multi-item scales resulted in the theoretically expected factor solutions. Second, we determined the reliability coefficient a for each multi-item scale. Each coefficient exceeded the commonly accepted standard of reliability of .60 (McAllister, 1995). Third, we relied on confirmatory factor analyses to evaluate the convergent validity and reliability of the measurement scales. In this context, one item was dropped from each of the four scales measuring output and process controls and competence and goodwill trust, due to low factor loadings. All other factor loadings are above .40 and highly significant (p � .01), pointing to the unidimensionality of the measures (Bagozzi & Baumgartner, 1994). The composite reliabilities were all above the .60 benchmark (Bagozzi & Yi, 1988), and the average variance- extracted (AVE) indices were all greater than the .50 benchmark (Fornell & Larcker, 1981). We assessed discriminant validity by verifying whether each construct's variance shared with other constructs is lower than its AVE. As this is the case for all our constructs, discriminant validity is indicated (Fornell & Larcker, 1981). Overall, these results show that our measures possess suf- ficient reliability and validity.

5. Results

We use structural equation modelling (SEM) with the partial least squares (PLS) estimation method to test the hypotheses. In contrast to a covariance-analytical approach, the PLS estimation method has the advantage of less strict assumptions regarding the distribution of data and allows for the robust estimation of smaller samples, like ours (G€otz, Liehr-Gobbers, & Krafft, 2010). However, there are currently no global indices to determine the overall fit of the model, which is why scholars commonly rely on bootstrapping to assess the significance of estimation results (Henseler, Ringle, & Sinkovics, 2009). We follow common reporting standards and

4 5 6 7 8 9 10

1.00 0.49*** 1.00

** 0.14* 0.14* 1.00 ** 0.18** 0.43*** 0.17* 1.00

0.28*** 0.41*** �0.00 0.30*** 1.00 ** 0.02 0.40*** 0.18** 0.46*** 0.07 1.00

0.31*** 0.34*** 0.00 0.09 0.24*** 0.01 1.00

Table 2 Results of PLS-SEM.

Model 1 Model 2 Model 3

DV: Rel.ship perf.

DV: Comp. trust

DV: Goodwill trust

DV: Rel.ship perf.

DV: Comp. trust DV: Goodwill trust

DV: Rel.ship perf.

Control variables Organizational size �0.06 (0.06) e e �0.07 (0.07) e e �0.07 (0.07) Number of suppliers �0.01 (0.04) e e �0.08 (0.05) e e �0.08 (0.05) Supplier heterogeneity 0.25*** (0.09) e e 0.25*** (0.09) e e 0.25*** (0.09) Key predictors Output controls 0.21** (0.09) 0.05 (0.06) 0.15* (0.08) 0.22** (0.09) 0.06 (0.06) 0.15* (0.08) Process controls �0.33*** (0.09) �0.20** (0.08) �0.03 (0.06) �0.33*** (0.09) �0.20** (0.08) �0.03 (0.06) Normative controls 0.33*** (0.07) 0.50*** (0.07) 0.26*** (0.09) 0.32*** (0.07) 0.50*** (0.07) 0.26*** (0.09) Relationship length 0.21*** (0.07) 0.13** (0.06) 0.06 (0.05) 0.21*** (0.07) 0.13** (0.07) 0.06 (0.05) Competence trust e e 0.17** (0.09) e e 0.17** (0.09) Goodwill trust e e 0.06 (0.06) e e 0.06 (0.06) Interactions Output controls � relationship length 0.14* (0.07) 0.07 (0.06) e Process controls � relationship length 0.08 (0.06) 0.04 (0.05) e Normative controls � relationship length �0.14** (0.07) �0.10 (0.06) e No. of observations 212 212 212 212 212 212 212 R2 0.06 0.27 0.29 0.30 0.29 0.30 0.30 Change in R2 0.24 0.03 0.01 0.00

Note: Continuous variables used in the interaction terms have been mean-centered. Above-reported coefficients are unstandardized. Standard errors are reported in pa- rentheses. Relationship length is coded 1 for long-established relationships and 0 for recently established ones. DV ¼ dependent variable. *p � 0.1; **p � 0.05; ***p � 0.01

M. Holtgrave et al. / European Management Journal 35 (2017) 523e537 531

separately assess the effect of controls (Model 1), predictor vari- ables (Model 2) and interaction effects (Model 3) on partnership performance (Models 1e3). Descriptive statistics and correlations are provided in Table 1.

As indicated by the change in coefficients of determination (R2) we report, Model 3 fits our data best (Chin, 1998). Our results for all three models are summarized in Table 2. Hypotheses 1e3 postu- lated positive effects of the three organizational control practices on competence and goodwill trust. As Model 2 shows, output controls in fact have a significant positive impact on buyer trust in the foreign supplier's competence (b ¼ 0.21; p � .05) but not on trust in the foreign supplier's goodwill (b ¼ 0.05), thus supporting H1a but refuting H1b. Surprisingly, process controls seem to have a significant negative effect on both competence (b ¼ �0.33; p � .01) and goodwill trust (b ¼ �0.20; p � .05), contradicting H2a and b. Lastly, Model 2 highlights strong positive effects of normative controls on both competence (b ¼ 0.33; p � .01) and goodwill trust (b ¼ 0.50; p � .01), providing empirical support for H3a and b.

Regarding the direct impact of relationship length, Model 2 provides empirical evidence for a significant positive effect on both competence (b ¼ 0.21; p � .01) and goodwill trust (b ¼ 0.13; p � .05), thus supporting H4a and b. Further and relating to our hypotheses 5e7, Model 3 shows significant and non-significant interaction effects of relationship length and the three organiza- tional control practices on competence and goodwill trust. Specif- ically, output controls seem to have a stronger positive effect on buyer trust in the foreign supplier's competence in long- established relationships (b ¼ 0.14; p � .1), whereas we find no significant interaction effect on trust in the supplier's goodwill (b ¼ 0.07). Thus, Model 3 supports H5a but contradicts H5b. We also find no significant interaction between process controls and relationship length (b ¼ 0.08; b ¼ 0.04), thus providing no support for H6a and b. For normative controls, we surprisingly find a sig- nificant negative effect of the interaction with relationship length on competence trust (b ¼ �0.14; p � .05), but not on goodwill trust (b ¼ �0.10), thus refuting both H7a and b. The two significant patterns of interaction are shown in Fig. 3a and b.

Looking at the performance effects of the control practices and trust, Model 2 provides empirical support for H8a and c that pro- pose a positive effect of output controls (b ¼ 0.15; p � .1) and

normative controls (b ¼ 0.26; p � .01) on buyer-supplier relation- ship performance. However, we find no significant effect of process controls on performance (b ¼ �0.03), thus contradicting H8b. Similarly, Model 2 shows a significant and positive performance contribution only for trust in the supplier's competence (b ¼ 0.17; p � .05) but not goodwill (b ¼ 0.06), thus supporting H9a and refuting H9b. Regarding the control variables we included, only supplier heterogeneity significantly increases relationship perfor- mance (b ¼ 0.25; p � .01).

6. Discussion

6.1. Control and trust

Our study's primary motive is to untangle the trust-control nexus in buyer-supplier relationships, clarifying whether controls are a viable means for buyers to build and validate trust in their foreign suppliers. Specifically, our results show that the practices of output and normative controls possess the potential to create a textile buyer's trust in its foreign supplier. First, we hereby provide additional evidence for the general trust-building function of con- trols as proposed by several authors (e.g., Castelfranchi & Falcone, 2000; Costa & Bijlsma-Frankema, 2007; Stevens et al., 2015). Whereas output controls allow the buyer to draw explicit in- ferences about its foreign supplier's abilities, normative controls rely on interaction between the partners which likely provides implicit opportunity to monitor the supplier's business conduct (Das & Teng, 2001). Not surprisingly then, both control practices demonstrably play an important role in determining the level of trust the buyer places into the supplier's competence. Moreover, our results provide empirical support for the positive relationship between normative controls and goodwill trust, which has been described as a natural outcome of this control practice (e.g., Aulakh et al., 1996).

Second, our data demonstrate that process controls differ greatly from the other two control practices investigated. As we find pro- cess controls to wield a negative influence on both competence and goodwill trust, we highlight that the question whether control and trust act as substitutes or complements clearly depends on their specific configuration. We offer two reasons for this negative effect

M. Holtgrave et al. / European Management Journal 35 (2017) 523e537532

of process controls: First, and according to Dekker (2004), controls will damage trust when the use of control practices exceeds the need for control that the exchange relationship itself generates. Even though we did not inquire into the foreign suppliers' exact geographical locations, it seems safe to assume that the majority of suppliers are located in Eastern-European, Northern-African, and Asian low-wage countries (De Brito et al., 2008; Routroy & Shankar, 2014). Against this backdrop, process controls mean a direct interference of a geographically and culturally distant buyer in its foreign supplier's operations. Hence, process controls are likely perceived as a profound invasion of the supplier's property rights and may thus motivate the foreign supplier to take defensive ac- tion. Accordingly, several scholars have pointed out that process controls hinder the development of trust or create an atmosphere of distrust between the exchange partners (Das & Teng, 2001; Inkpen & Currall, 2004). Second, Rousseau et al. (1998) suggest that control may be the result of an absence of trust. Following this notion, process controls might not actively hinder the development of buyer trust in the foreign supplier but rather become operational in situations of low trust, e.g. after the supplier has actively violated the buyer's trust, and might therefore be an answer to recent scandals across the textile industry.

Addressing managers of the textile and similar industries, our analysis demonstrates that the interplay of control and trust in buyer-supplier relationships follows neither a substitutional nor a

Fig. 3. a. Effect of output controls � relationship length on competence trust.

complementary perspective, but is instead more complex. Following a rationalist approach, we demonstrate that trust and control have the common goal of absorbing behavioural uncer- tainty, but interact in different ways depending on the context and specific control practices the buyer relies upon (cf., Eberl, Geiger, & Aßl€ander, 2015; Vosselman & van der Meer-Kooistra, 2009). While output and normative controls have the potential to build buyer trust in the foreign supplier, process controls seem to reduce trust or operate in cases were low levels of trust are present. Thus managers are given clear insight on when to leverage which prac- tice of control.

6.2. Relationship length, control, and trust

In order to acknowledge the dynamics of trust building, we comprehensively analyse the effect of different control practices on competence and goodwill trust in a temporal manner. Contrasting recently- and long-established relationships, first our data un- derlines the relevance of time for both dimensions of interorgani- zational trust. The levels of textile buyers' competence and goodwill trust in their foreign suppliers are generally higher in later stages of exchange relationships (cf., V�elez et al., 2008; Vosselman & van der Meer-Kooistra, 2009). Herewith, we empirically confirm that a buying organization's expectation of positive supplier behaviour and its willingness to be vulnerable are ultimately based

b. Effect of normative controls � relationship length on competence trust.

M. Holtgrave et al. / European Management Journal 35 (2017) 523e537 533

on repeated positive experience of competence and goodwill, as proposed by social exchange theory (Child & M€ollering, 2000).

Second, our findings are in accordance with previous literature, as we demonstrate that the behaviour of organizations in exchange relationships is temporal (e.g., Bachmann et al., 2015; Lui & Ngo, 2012). In particular, we find empirical evidence for different ef- fects of controls exerted by textile buyers on trust in their foreign supplier's competence between temporal stages of the relationship. While the positive effect of output controls on competence trust is higher for long-established exchange relationships, quite the reverse is true for normative controls. The underlying functions of control seem to provide a viable rationalization for this finding. As Das and Teng (2001) note, the practice of output controls is based on a comparison of planned outcomes with those actually realized. Thus, effectively monitoring the supplier's work output requires a prior process of planning and goal setting, which e considering the global textile value chain e demands that the buyer has acquired experience with its foreign supplier over repeated exchanges (Dwyer, Schurr, & Oh, 1987). Thus, our result that output controls foster trust in the supplier's competence more strongly in later stages of the relationship seems reasonable. Normative controls, however, rely on informal norm enforcement, such as peer pressure (Doz, 1996; Inkpen & Currall, 2004). Based on our results, we can assume that as the exchange parties’ norms and values become more and more aligned over time, the opportunities to build additional competence trust via informal norm enforcement become fewer and fewer.

Finally, our data implies that the effect of controls on buyer trust in the foreign supplier's goodwill remains unaffected by time. This indicates that in terms of enhancing goodwill trust, controls are mostly important at the beginning of an exchange relationship. In later stages, controls seem to be unable to enhance goodwill trust any further, whereas their value in terms of building competence trust increases. Looking at the different nature of both dimensions of trust, we believe the reason for these findings to be that trust in a foreign supplier's goodwill relates to a general perception that this supplier will not act opportunistically, which is relatively stable over time. Taking the evolution of the exchange relationship in interdependence, scope, and complexity into account, the foreign supplier's competence to deliver the required results, however, is far more likely to fluctuate, and might therefore require additional controls in later stages of the relationship. Hence, textile buyers rely on controls to form a perception of the foreign supplier's goodwill at the beginning of the relationship. This dimension of trust, it seems, is not questioned over the length of the relationship. However, the evolution of the exchange relationship goes hand in hand with changing requirements in terms of the textile supplier's abilities (e.g., to manufacture larger quantities, different qualities, or different products). Hence a constant reassessment is necessary, whether trust in the supplier's competence is still justified. The established finding of various trust scholars (e.g., Mayer et al., 1995), that the quantity of interaction is an important antecedent for trust, is thus put into perspective by our findings, as it appears not to apply to all dimensions of trust equally.

Addressing managers, we encourage them to pay close attention to the issue of relationship length when deciding on matters of control and trust in buyer-supplier relationships. As our results clearly highlight that trust is built over repeated positive experi- ence of competence and goodwill, we underline the virtue of long- term collaboration in buyer-supplier relationships. Only in the context of repeated exchanges can levels of trust emerge that enable effective interorganizational collaboration (Cook et al., 2013;

Emerson, 1976). Moreover, we urge management not to neglect the temporally different requirements for interorganizational control practices. Our empirical data have shown normative controls to be of particular importance in the early stages of buyer-supplier re- lationships whereas output controls seem to be of more value later on. Building upon this result, we stress the value of mutual training, socialization, and particularly personal interaction at the start of the exchange relationship.

6.3. Performance, control, and trust

Finally, our study investigates the effective performance contri- butions of interorganizational control practices and buyer trust in the foreign supplier within the textile industry. Herewith, we aim to help resolve some of the inconsistencies that surround prior studies' practical advice. First, we demonstrate that both output and norma- tive controls as well as competence trust drive the buyer-supplier relationship's performance, while process controls and goodwill trust have no significant impact. These findings are in accordance with those of Colquitt, LePine, Piccolo, Zapata, and Rich (2012), who also found evidence for a highly nuanced influence of different facets of trust and control on performance. In sum, both output and normative controls seem to lower perceived relational and perfor- mance risks, thereby enhancing performance (Das & Teng, 2001; Geringer & Hebert, 1989). However, in accordance with our earlier findings regarding process controls impact on trust, this practice seemstoeitherprovokedefensivebehaviouroftheforeignsupplieror to be deployed in case of already unsatisfactory relationship perfor- mance. In the textile industry, the implementation of process controls at the site of the foreign supplier's operations likely involves high expenditures, which may diminish any positive performance effects this control practice might have, resulting in a zero-sum game.

Second and regarding trust, our findings further point towards the decisive role of the supplier's competence, whereas our data imply the apparently negligible importance of the supplier's goodwill. This result underlines the broad consensus in the litera- ture, which has repeatedly stressed the relevance of the partner's competence in interorganizational relationships (Kannan & Tan, 2002; Koufteros, Vickery, & Dr€oge, 2012). As in many industries, the economic success of textile buyers largely depends on their suppliers' ability to provide them with the right tools (e.g., the right products, at the right time, and to competitive prices) to sustain in the competitive environment (Chen & Fung, 2013). Not surpris- ingly, it is trust in the foreign supplier's competence to deliver that ultimately sways judgments of performance.

The managerial implications of our findings are twofold: First, our results clearly indicate that the question whether the foreign supplier has the necessary ability and technical skills is the most important factor in buyer-supplier relationships. Textile buyers usually audit potential suppliers' resources and competence before deciding whether to start an exchange relationship (Turker & Altuntas, 2014). With our results, we confirm the importance of these procedures and call on managers to continue that practice. Second, however, taking into account that goodwill is an integral dimension of trust, we question whether its apparent negligence is actually effective or might be the reason for why scandals and trust violations have occurred on such a broad level within the textile industry (Colquitt, Scott, & LePine, 2007). Hence, we encourage future research to investigate the reasons for why buyers do not seem to place as much value on evaluation criteria such as honesty, issues of fairness, or broadly speaking their foreign supplier's goodwill, particularly at the beginning of an interorganizational

M. Holtgrave et al. / European Management Journal 35 (2017) 523e537534

partnership.

Table A1 Harman one-factor test.

Component Eigenvalue % of variance extracted Cumulative %

1. 7.90 27.23 27.23 2. 3.96 13.65 40.88 3. 3.16 10.89 51.76 4. 1.97 6.81 58.57 5. 1.75 6.03 64.60 6. 1.26 4.33 68.93

Note: n ¼ 212. Principal component analysis used as extraction method.

Table A2 Latent method factor.

Construct Substantive factor loading (R1)

(R1)2 Method factor loading (R2)

(R2)2

1. Output controls

0.81*** 0.66 �0.11 0.01 2. 0.74*** 0.55 0.04 0.00 3. 0.69*** 0.47 0.07 0.00 1. Process

controls 0.84*** 0.71 0.03 0.00

2. 0.89*** 0.80 �0.05 0.00 3. 0.84*** 0.70 0.02 0.00 1. Normative

controls 0.66*** 0.43 0.23*** 0.05

2. 0.88*** 0.78 �0.02 0.00

6.4. Limitations and further research

As with any research, our study has several limitations: First, we relied on single-source and self-reported data by German textile buyers, which may lead to common method bias in that the re- spondents provided data on both endogenous and exogenous var- iables. We encourage our readers to bear these methodological limitations in mind, for example when assessing the impact of controls and trust on performance. However, considering the careful construction of our questionnaire and the results of statis- tical post-hoc testing, we are positive that common method bias does not pose a major concern (Podsakoff et al., 2003). Second, as we did not actually observe how specific exchange relationships change over time but rather compared attributes of recently and long-established relationships, the design of our study is essentially cross-sectional in nature. We believe a longitudinal study would be of value to validate our findings concerning the temporal interre- lationship of control, trust, and performance in buyer-supplier re- lationships. Third, we note that our study is limited to the analysis of existing exchange relationships within the textile industry. Whereas in recently established relationships the exchange parties are still in a stage of evaluating each other and deciding whether to continue the relationship, long-established relationships have clearly proven to be of value. Therefore, it would be most inter- esting for future studies to broaden the focus by also considering terminated exchange relationships and analysing the reasons for their discontinuation as well as evaluating the applicability of our findings across other industries. Moreover, in order to protect our respondents’ anonymity, we decided against inquiring into the exact geographical locations of the foreign suppliers e in part because the specifics of the textile industry indicate that the large majority of these will be located in a select number of low-wage countries (Routroy & Shankar, 2014). Nonetheless, we encourage future research to be more country-specific, in order to single out possible interference by structural, political, and cultural conditions of the individual buyer-supplier relationship. Lastly, we would like to draw attention to the fact that our results are contingent on our conceptualization of trust and its two dimensions: competence and goodwill. Even though this basic distinction is represented in much of the academic literature, the exact nature of trust still seems elusive and there are multiple alternative classifications (Bachmann, 2001). In this light, we deem it necessary for the field of trust research to put even more effort into carving out the dis- tinctions between and/or unifying the competing conceptualiza- tions and operationalisations of trust.

3. 0.98*** 0.97 �0.22*** 0.05 1. Competence

trust 0.92*** 0.84 �0.05 0.00

2. 0.81*** 0.65 0.06 0.00 3. 0.94*** 0.87 �0.05 0.00 4. 0.79*** 0.62 0.12 0.01 5. 0.92*** 0.84 �0.08 0.01 1. Goodwill

trust 1.03*** 1.05 �0.20*** 0.04

2. 0.88*** 0.77 �0.05 0.00 3. 0.96*** 0.93 �0.09 0.01 4. 0.78*** 0.61 0.11 0.01 5. 0.67*** 0.44 0.22*** 0.05 1. Relationship

performance 0.81*** 0.66 0.01 0.00

2. 0.88*** 0.77 �0.08 0.01 3. 0.77*** 0.59 �0.01 0.00 4. 0.92*** 0.85 �0.10** 0.01 5. 0.62*** 0.39 0.23*** 0.05 6. 0.78*** 0.61 �0.05 0.00

Note: n ¼ 212. *p � 0.05; **p � .01; ***p � 0.001

7. Conclusion

With our study, we provide a more nuanced approach to the different practices of interorganizational control and dimensions of trust both conceptually and in a temporal manner, in order to un- tangle the trust-control nexus in buyer-supplier exchange re- lationships. Moreover, we have investigated the performance effects of both governance mechanisms to provide sound practical advice. Although we find the majority of control practices that buyers rely upon to be effective in developing and validating trust in their foreign suppliers, our results also reveal important differ- ences depending on which specific control practice is deployed and at which temporal stage of the relationship. Additionally, we reveal which control practices and dimensions of trust drive the perfor- mance of the buyer-supplier relationship and which do not.

Combined, we believe this study to allow for a comprehensive understanding of the trust-control nexus in buyer-supplier re- lationships and to provide relevant managerial advice on which governance mechanisms to emphasize.

Acknowledgements

An earlier version of this study was presented at the British Academy of Management 2014 Conference, where it was awarded the Best Full Paper Award in the Organizational Psychology track. We thank the track chairs Jill Hanson and Lee Martin for their valuable feedback.

This research was supported by the German Research Founda- tion [grant number 1712/1]. The views expressed in this work are those of the authors and do not necessarily reflect the organizations with which they are affiliated or their sponsoring institutions or agencies.

Appendices

A. Common Method Assessment

Table B1 Measurement items and validity assessment.

Output controls: a ¼ 0.62; CR ¼ 0.79; AVE ¼ 0.56; HSV ¼ 0.21 SFL (1 ¼ strongly disagree; 5 ¼ strongly agree) 1. Established production targets for our suppliers are specified in the contract. 0.66*** 2. Our suppliers have agreed upon clear quality standards. 0.84*** 3. Our suppliers' adherence to ethical and social standards is clearly specified in the contract. 0.73*** 4. Our future relationship with our suppliers is contingent on how they achieve the specified goals. ea

Process controls: a ¼ 0.84; CR ¼ 0.89; AVE ¼ 0.73; HSV ¼ 0.21 SFL (1 ¼ strongly disagree; 5 ¼ strongly agree) 1. Our firm regularly monitors the quality control maintained by our suppliers. ea

2. Our firm frequently oversees our suppliers' adherence to ethical and social standards. 0.91*** 3. Our firm closely monitors the extent to which our suppliers follow established procedures. 0.92*** 4. We have developed specific procedures for our suppliers to follow. 0.71*** Normative controls: a ¼ 0.77; CR ¼ 0.87; AVE ¼ 0.68; HSV ¼ 0.23 SFL (1 ¼ strongly disagree; 5 ¼ strongly agree) 1. Our suppliers fully understand the philosophy of our firm. 0.84*** 2. Our suppliers have tried to incorporate our management philosophy into their own organization. 0.85*** 3. We have made concerted efforts to install our business philosophy in our suppliers' organizations. 0.79*** Competence trust: a ¼ 0.93; CR ¼ 0.95; AVE ¼ 0.78; HSV ¼ 0.36 SFL (1 ¼ strongly disagree; 5 ¼ strongly agree) 1. Our suppliers are very capable of performing at their jobs. 0.87*** 2. Our suppliers are known to be successful at the things they try to do. 0.89*** 3. Our suppliers have much knowledge about the work that needs done. 0.89*** 4. I feel very confident about our suppliers' skills. 0.89*** 5. Our suppliers have specialized capabilities that can increase our performance. ea

6. Our suppliers are well qualified. 0.86*** Goodwill trust: a ¼ 0.91; CR ¼ 0.94; AVE ¼ 0.74; HSV ¼ 0.36 SFL (1 ¼ strongly disagree; 5 ¼ strongly agree) 1. Our suppliers have a strong sense of justice. 0.84*** 2. I never have to wonder whether our suppliers will stick to their word. 0.82*** 3. Our suppliers try hard to be fair in dealings with others. 0.87*** 4. Our suppliers' actions and behaviours are not very consistent. (R) ea

5. I like our suppliers' values. 0.91*** 6. Sound principles seem to guide our suppliers' behaviour. 0.86*** Relationship performance: a ¼ 0.89; CR ¼ 0.92; AVE ¼ 0.65; HSV ¼ 0.16 SFL Please rate how the business relationship with your supplier has contributed to your firm's performance in the following areas. (1 ¼ very negatively; 5 ¼ very positively) 1. Profitability. 0.83*** 2. Sales growth. 0.83*** 3. Return on Investment (ROI). 0.76*** 4. Market share. 0.85*** 5. Customer satisfaction. 0.79*** 6. Image. 0.77*** Organizational size: a ¼ 0.88; CR ¼ 0.65; AVE ¼ 0.51; HSV ¼ 0.14 SFL 1. How many employees does your firm have? 0.45** 2. What was your firm’s turnover in the last financial year? 0.90*** Number of suppliers 1. With how many suppliers does your firm regularly conduct business with? Supplier heterogeneity (1 ¼ entirely homogenous; 5 ¼ entirely heterogeneous) 1. Compared with each other, would you characterize your suppliers as similar (homogenous) or different (heterogeneous)?

Note: Shown are English translations of the German items used in the original survey. Items for output, process, and normative controls, competence and goodwill trust, and relationship performance were separately assessed twice, relating to recently and long-established exchange relationships, respectively.

a Item dropped due to negative factor loading; (R) reverse-coded item; SFL ¼ standardized factor loading; a ¼ Cronbach alpha; CR ¼ composite reliability; AVE ¼ average variance-extracted; HSV ¼ highest shared variance with other constructs. *p � 0.05; **p � 0.01; ***p � 0.001.

M. Holtgrave et al. / European Management Journal 35 (2017) 523e537 535

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Maximilian Holtgrave is a Ph.D. student and currently works at Muenster School of Business and Economics, Germany. He lectures on information- and international- management, HR, and organizational theory. His research interests include issues of trust, control, communication, and digitalization in inter-organizational business rela- tionships. He has presented his work at several international conferences and has won the Best Full Paper Award at the British Academy of Management Conference.

Dr Ann-Marie Nienaber is an Associate Professor in Business Management at the Centre for Trust, Peace and Social Relations at Coventry University, UK. Her research focuses on trust in and between organizations, and sustainable as well as ethical management. She has won several prizes for her work, including Best Full Paper Awards at European Group for Organizational Studies, British Academy of Manage- ment, or International Association of Management for Technology. She has published in a number of renowned academic and managerial journals.

Dr Carlos Ferreira is a Research Assistant at the Centre for Business in Society, at Coventry University, UK. His research interests include the topics of ethical and responsible business practices and their intersection with the governance of public goods. Specifically, he focuses on the importance of responsible governance and responsible innovation.