Table of Contents

Trust and Entrepreneurship

Trust and Entrepreneurship

A West–East Perspective

Edited by Hans-Hermann Höhmann and Friederike Welter

In this innovative book, international scholars investigate trust and its role in relation to the entrepreneurial behaviour of small firms across a variety of institutional and cultural settings. The contributors draw on original empirical material from a number of West European and East European countries, highlighting the role of culture and the significance of a multi-disciplinary approach in researching trust and its importance in entrepreneurship.

Chapter 13: Trust in Small-firm Business Networks in East and West Germany

Teemu Kautonen and Friederike Welter

Subjects: business and management, entrepreneurship


Teemu Kautonen and Friederike Welter INTRODUCTION Research has established that networks play an important role during the establishment, development and growth of small businesses (Greve 1995; Shaw and Conway 2000). This chapter focuses on the governance of smallfirm business networks. Business networks refer to the aggregate of continuous exchange and other co-operative relations that a firm is engaged in with other firms. Therefore, relations within business networks consist of series of transactions possessing a history and a future (Håkansson and Snehota 1995). The governance discussion, on the other hand, addresses the problem of achieving effective co-ordination at minimal transaction costs while accounting for bounded rationality, uncertainty and asset specificity, which give rise to a risk of opportunism (Williamson 1985). The fundamental governance issue is therefore on what basis a firm expects co-operative as opposed to opportunistic behaviour from the partner in a network relation and at what perceived risk. In this context governance mechanisms play a central role. The relation of trust to formal contracts and other forms of formal control has been a central topic in studies of the governance of inter-firm relations and networks (for example, Dyer 1997; Klein Woolthuis et al. 2002; Lorenz 1988). This chapter focuses on the role of trust as a substitute and complement to formal contracts in small-firm business networks. Hence, trust is defined as a broad category that subsumes different forms of informal governance in business networks, that is, those forms that cannot be enforced through the courts. Trust is an...

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