Curbing Foreign Distributor Opportunism: An Examination of Trust, Contracts, and the Legal Environment in International Channel Relationships

Abstract

Many tenets of cross-border governance arrangements are broad-brush projections of domestic findings. To explore such generalizations, this study uses data from a large set of U.S.-based manufacturers to formulate and test propositions about limiting the potential opportunistic behavior of foreign distributors. The findings challenge two generalizations about governance arrangements in the cross-border context. The first is that a manufacturer is often handicapped disproportionately by its level of brand and scale prominence. Formal contracts as prescribed by transaction cost analysis, though negatively related to opportunism, do not have a significant effect on the alleviation of foreign distributor opportunism. The second generalization is that the joint use of trust and formal contracts is not significantly associated with opportunism. Trust and formal contracts serve different purposes. Trust makes the relationship function, and contracts institute and legitimize it. Furthermore, previous studies investigate opportunism in isolation, whereas this study points to the influence of legal hostility on the management of opportunism in the export market.