The Effect of Trust on International Joint Venture Performance in China

Abstract

The role of trust in international joint venture (IJV) performance has attracted a great deal of attention and trust has been recognized as a crucial factor in achieving both financial and non-financial success of IJVs. This paper examines the role of trust from two perspectives: the inter-organizational level and the interpersonal level, as well as their combinations in influencing the performance of IJVs. The paper develops a model of trust in IJVs, which is used to analyze the determinant factors of trust and the influence of trust on IJV performance. The results confirm that trust improves the performance of IJVs and outstanding performance also enhances the level of trust within firms. Results also reveal that Chinese employees hold less trust toward their foreign co-workers and great communication skills have positive influence on trust building. Furthermore, young employees are more inclined to trust people from different nationalities compared to the elders. Satisfactory level of compensation is not directly related to trust building. The findings provide important implications for communication and relationship building between foreign investors and local partners. Keywords: trust, effect, performance, IJV, China