Enterprise Risk Management: Re-Conceptualizing the Role of Risk and Trust on Information Sharing in Transnational Alliances

Abstract

Globalization places greater emphasis on the development of transnational alliances. The greatest benefits from alliances are derived from high-level information sharing, but risk escalates with information sharing. This study examines risk in transnational alliances based on a conceptual model drawing from enterprise risk management (ERM) philosophies. ERM focuses on business risk as the primary determinant of partner selection and continuity in alliances, whereas prior research has focused on trust. The purpose of this study is to examine the influence of ERM on risk and trust associated with transnational alliances and the resulting impact on interorganizational information sharing. Survey data is gathered from 200 North American managers monitoring transnational alliance relationships. Structural equation model is used to test the hypothesized interrelationships. Results provide strong support for the research model, showing that high ERM leads to decreased risk, increased trust, and improved information sharing. Given the on-going debate over the relationship directionality between trust and risk, we conducted additional sensitivity testing. Using split samples, we extract the firms with very high ERM and test separately. For the very high-level ERM firms, all relationships center around business risk with risk levels driving trust and information sharing. For the remaining sub-sample, all relationships center around trust with trust driving perceived risk and the level of information sharing. Overall, our results show ERM substantially alters strategic management of transnational alliances, but there appears to be a maturation phase where firms with less mature ERM processes continue to rely on trust as a primary control mechanism.