Trust formation in outsourcing relationships: A social exchange theoretic perspective

Manufacturing and services outsourcing has grown from being a simple cost reduction mechanism to a sophisticated initiative enhancing a firm's capabilities. Of utmost importance in these outsourcing relationships is trust, which is the focus of the present study. Drawing on social exchange theory, we hypothesize about antecedents to trust formation in buyer–supplier relationships; specifically, we consider the exchange relationship aspects of process integration, contract flexibility and cultural understanding. We further hypothesize about the contingent, moderating role of process integration on the relationships between contract flexibility and trust, and between cultural understanding and trust. We suggest that the relationship would weaken for contract flexibility, but would strengthen for cultural understanding. These hypotheses are tested with data collected from 177 outsourcing ventures. Implications for research and practice are highlighted.