Abstract
Much attention is drawn to an argument that social networks may influence development and performance of transactions and cooperation among firms, as many interfirm networks such as network organizations and strategic alliances recently show higher performance in market competition. Many scholars in economics, organizational theory and sociology argue that interorganizational trust is one of the critical conditions that can socially constrain opportunism in interfirm relations. The embeddedness approach from the new economic sociology reveals that social networks among organizations may facilitate the development of interorganizational trust with special relational and structural conditions such as high reciprocity and distributions of reputation. The aim of this paper is to review how the embeddedness approach explains the mechanism in which the special properties of social networks facilitate the development and the decline of interorganizational trust, by using the common concepts from the social exchange theory in, and to show that special relational and structural properties of social networks may facilitate its development.
The embeddedness approach focuses on the structural effects of social networks among organizations on interorganizational trust in relational and structural dimensions, which are also known as “relational” and “structural embeddedness.” First, if social networks among organizations exhibit strong cohesion, they also have high reciprocity which is likely to facilitate firms to make a long-term commitment to their cooperation and “relational trust.” Second, if social networks have high density or many third-party mediations, they enjoy a great distribution of reputation that may encourage firms to share similar expectations for other companies, thus developing a “system-level trust.” Therefore, the embeddedness approach can explain how social networks affect the governance of economic exchange among firms through the development and the decline of interorganizational trust.
