The Evolution of Trust in Business-To-Business E-Commerce

Pauline Ratnasingam. Electronic Commerce: Concepts, Methodologies, Tools, and Applications. Volume 1. Contemporary Research in Information Science and Technology Hershey, PA: Information Science Reference, 2008.

INTRODUCTION

E-commerce is defined as a means of conducting business electronically via online transactions among trading partners. Forrester Research predicted that B2B (business-to-business) e-commerce could be worth $5.7 trillion by the end of 2004. This study aims to examine the evolution of e-technologies and its impact on trust. Trust refers to reliance on and confidence in one?s business partner (Mayer, Davis, & Schoorman, 1995). We discuss the evolution of e-technologies in light of the evolution of trust in technology trust (or transactional trust) and relationship trust or (relational trust). Electronic data interchange (EDI) was the prominent technology used in the 1970s and ?80s. As we approached the 21st century and with the advent of the Internet, businesses feared that the lack of presence on the Internet would hinder their competitive and strategic advantages. Internet competition in most industries is forcing businesses to search for ways to improve product quality, customer service, and operation efficiency in supply chain management (SCM) in order to remain competitive. Today e-commerce has moved beyond EDI via value-added networks (VANs) by leveraging into the Internet and extending into Web technologies. The Internet is transforming and reshaping the nature of inter-organizational commerce by enabling new types of inter-organizational relationships. The business benefits include lower costs and more flexible systems that provide a facilitating structure for virtual relationships, enabling the easier identification of suppliers and products and more integrated supply chain management (Dai & Kaufmann, 2000). The Internet has impacted the SCM e-commerce environment by creating a centralized, global business and management strategy (e.g., make to order, assemble to order, and make to stock), and online real-time, distributed information processing to the desktop, thereby providing total supply-chain information visibility and the ability to manage information not only within firms, but also across firms and industries.

On the other hand, uncertainties, technical complexities, and concerns about trust have kept many firms from participating actively in B2B e-commerce. Uncertainties reduce the confidence both in the reliability of online B2B transactions and more importantly in the trading parties themselves. In a survey of 60 procurement trading partners involved in supply chain management at U.S. firms conducted by New York-based Jupiter Media Metrix Inc. in 2001, the findings indicated that 45% of the trading partners suggest a lack of trust prevented them from buying goods and trading online more frequently. In the next section we discuss the evolution of e-technologies, followed by its role in supply chain management and impact on trust.

THE EVOLUTION OF E-TECHNOLOGIES AND TRUST

We discuss the evolution of e-technologies from traditional EDI via VANs to Internet-based EDI, extranets, e-marketplaces, and Web services commonly used in supply-chain activities today. Further, we link these e-technologies and their impact on trust. The study provides a novel discussion on how management is affected by using e-technologies for SCM activities. More importantly, we discuss how the evolution of different types of e-technologies impacts the evolution of trust. The next section describes the e-technologies.

Traditional EDI via Value-Added Networks

The traditional EDI-via-VANs technology has been used for almost three decades and has brought its users significant advantages resulting in increased productivity and efficiency. EDI is defined as the computer-to-computer exchange of intercompany business documents and information through standard interfaces that requires hardware, software, and communications technology that permit computers to transfer the data electronically (such as purchase orders, invoices, shipping notices, and price lists).

Organizations that used EDI relied mostly on VANs and private messaging networks, both characterized by relatively high costs and limited connectivity. As an automated information exchange, EDI standardizes documents such as purchase orders, invoices, and shipping documents into an agreed-upon open-coded format. Connectivity to VANs was available only for large organizations that relied mostly on mailbox services. VANs were considered too expensive to implement, and smaller suppliers were pressured to adopt EDI (Langfield-Smith & Greenwood, 1998). Furthermore, recent research reflects reluctance on the part of traditional EDI trading partners to adopt the Internet due to the newness of the Internet technology, potential Internet legislations, the lack of Internet standards, and the lack of reliability and security of data transmission within the Internet environment.

Internet-Based EDI

Alternatively, Internet-based EDI, with significantly fewer implementation constraints, plays an important role in extending EDI benefits to a wider spectrum of businesses. Internet-based EDI differs from traditional EDI as it uses proprietary fat files in HTML (hypertext markup language) formats and it establishes two types of connections. The first is a direct connection that requires front-end translation software to transmit and display documents or interfaces with existing in-house application systems. Second is through a third-party Internet VAN (IVAN) that sets up a Web page to perform translations and exchanges among trading partners.

What was once cost effective for only large corporations conducting e-commerce in EDI format is today feasible for all organizations through Internet commerce applications (using Internet-based EDI, intranets, extranets, e-marketplaces, and Web services). E-technologies promote accessibility, availability, and universality, thereby allowing trading partners to interact with one another easily. Furthermore, the Internet provides smaller suppliers with an easy, inexpensive method of accessing data in addition to providing a ubiquitous reach and real-time access to information.

Extranets

Extranets are Internet-based applications that use standard protocols, middleware, and browser software to fulfill functional requirements and support supply-chain operations. Extranets serve as information communication technologies that integrate internal and external communications along the supply chain. The applications improve firm competitiveness by increasing the efficiency of internal and external communications and organizations, and by facilitating new and improved products and services. Furthermore, it is used to support information sharing among registered trading partners. For example, when orders come into an extranet system, the lead time for delivering the products is composed of order-processing times, material lead times, assembly lead times, distribution lead times, transportation times, and installation times.

E-Marketplaces

White and Daniel (2003) describe e-marketplaces as Web-based systems that enable automated transactions, trading, or collaboration between business partners. An electronic marketplace is an inter-organizational system that allows participating buyers and sellers to exchange information about processes, products, and services in the supply chain. Furthermore, Bakos (1998) suggests that the key tasks of e-marketplaces are matching buyers and sellers, aggregating and facilitating buyers? demands and sellers? products, and acting as agents of trust.

Web Services

Web services are modular Internet-based business functions that perform specific business tasks to facilitate business interactions within and beyond the organization. They are flexible, decentralized, open, unmonitored, shared Internet-based applications that allow firms to create new products and services faster than existing methods that consist of the dynamic assembly of loosely coupled components (e-services, legacy data; Fieldman, 2002; Fonseca, 2002). Web services bring requesters, providers, and brokers together, thereby connecting people, applications, and data (Fieldman). They are primarily technical, enabling e-collaborations among value-chain partners. Web services promise to increase flexibility, agility, and competitiveness as well as opportunities to reduce development cost and time. Early adopters of Web services include high-velocity industries, such as insurance, financial services, and high-technology industries. These industries are viewed as a set of diverse trading partners (including suppliers and customers) working closely together in a highly competitive market that requires continuous innovation to maintain competitive advantage (Paratech International, 2001). In the next section, we discuss how e-technologies impact supply chain management.

The Role of E-Technologies in Supply Chain Management

SCM is a network of facilities that procures raw materials, transforms them into intermediate subassemblies and final products, and then delivers the products to customers through a distribution system. The Internet provides a platform for electronic inventory management, production planning, purchasing, distribution management, and payment systems (Anderson & Lee, 2003).

For example, in the automotive industry, SCM involves balancing reliable customer delivery with manufacturing and inventory-management costs in order to effectively perform the order-fulfillment cycle time, inventory level, and cost. The main activities include material processing such as blanking, stamping, and information processing to forecast and plan production for each supplier, manufacturer, and assembler. Coordination among trading partners is critical due to interdependencies that include the shipment of steel sheets to the stamping plant and the shipment of doors, roofs, hoods, and minor parts. The overall objective is to minimize the inventory levels necessary to maintain reasonable order-fulfillment cycle times, taking into consideration the demand, process, and supply uncertainties across the supply chain. E-technologies also offer several secondary services including integrating the purchasing, distribution, and inventory processes, thereby streamlining the entire transaction process and allowing better inventory management, quality control, and supply chain management. Buyers experience effective e-procurement collaborative activities through better and more informed decisions in selecting suppliers and products, through superior planning and forecasting, and by obtaining more competitive pricing, better delivery terms, and higher product quality in the supply chain. Information on products, prices, businesses, and services in electronic databases are available to registered trading partners anytime from anywhere in the world. Furthermore, firms are using Web-based tools to make decisions and validate their trading partners (Domke-Damonte & Lensen, 2002). For example, Freightquote.com, a Lenexa provider of online freight management services, is using The Dun & Bradstreet Corporation in Murray Hill, NJ, to access the Global Decision Maker Web site for real-time recommendations on whether to grant credit. Therefore, both the internal and external integration of e-technologies is important for effective SCM. While internal integration involves interconnection with a variety of applications such as order entry, invoicing, billing, and payment transfers, external integration facilitates e-commerce transactions with trading partners such as suppliers, customers, government units, and financial institutions (Claycomb & Frankwick, 2004). Effective SCM and competition in the global economy demands trustworthy trading partners. In the next section, we discuss the role of trust in using e-technologies.

The Role of Trust in Using E-Technologies

The extant literature on relationship marketing defines trust as being that the partner?s word is reliable and that a party will fulfill its obligations. Economists and sociologists have been interested in how institutions are created to reduce the anxiety and uncertainty associated with transactions (e.g., Zucker, 1986). Trust in general involves uncertainty and dependency, as online transactions and exchange relationships are not only characterized by uncertainties, but also by anonymity, lack of control, and potential opportunism, making risk and trust crucial elements of e-commerce. Relational marketing includes activities directed toward establishing, developing, and maintaining successful relational exchanges. Relational exchanges include supplier partnerships (goods suppliers, just in time, and total quality management), lateral partnerships (competitors, technology alliances, nonprofit organizations, government), buyer partnerships (ultimate customers and intermediate customers), and internal partnerships (functional departments, employees, and business units).

Institutionally based trust production uses formal mechanisms and does not rest on personal characteristics or on past history of exchange (Zucker, 1986). Similarly, Grabner-Krauter and Kaluscha (2003) suggest that one important reason for the importance of trust in e-commerce is the fact that in a virtual environment, the degree of uncertainty of economic transactions can bring about several risks caused by the implicit uncertainty of using open technological infrastructures for the exchange of information (system-dependent uncertainty), or can be explained by the conduct or behavior of actors who are involved in the online transaction (transaction-specific uncertainty).

We propose that in B2B e-commerce relationships, technical solutions and security services provide impersonal assurances that contribute to expectations, intentions, and behaviors. Behaviors and intentions (i.e., intentions to continue in the e-commerce relationship) is a predictor of actual behavior (i.e., relationship continuity). This is consistent with Zucker (1986): Technology trust can be viewed as a form of institution-based trust. It is created in an impersonal economic environment (without familiarity) with similarity (communality). Trust forms not because people know each other personally, but because institutional structures that are akin to policies, auditing, and recourse are embedded in the e-commerce technology. Hence, we propose two types of trust?technology trust and relationship trust?discussed in the next section followed by types of communications.

Technology Trust

We refer to this impersonal form of system trust as technology trust. Technology trust is derived from the security mechanisms and standardized, routine business processes embedded in e-commerce technologies. The foundations of technology trust are the technical safeguards, protective measures, and control governance mechanisms that aim to provide reliable transactions through standardized, routine processes and detective mechanisms embedded in the e-commerce technology. We define technology trust as the subjective probability by which organizations believe that the underlying technology infrastructure is capable of facilitating transactions according to their confident expectations.

Relationship Trust

Relationship trust refers to the conduct and behaviors of actors involved in online transactions. Relationship trust is defined as the subjective probability with which organizational members collectively assess that a particular transaction will occur according to their confident expectations. It is derived from the interpersonal component of e-commerce relationships. Behaviors reflect reliability, integrity, and dependability as well as knowledge and understanding of the e-commerce system. Unique to e-commerce relationships, relationship trust is evidenced when a partner makes available real-time information. Trading partners have access to supply-chain databases containing information such as demand forecasts, sales data, inventory data, production data, and distribution data.

What is Communications?

Morgan and Hunt (1994) suggest that a major precursor of relationship trust is communication, which is defined as ?the formal as well as informal sharing of meaningful timely information between firms? (Anderson & Narus, 1990, p. 44). Previous research suggests that quality communication is related to satisfaction with the partner, intentions to continue a relationship, and a willingness to provide referrals (Morgan & Hunt; Sawhney & Zabin, 2002). MacNeil (1981) acknowledges that honest and open lines of communications encourage continued growth and close ties between partners. Furthermore, Doney and Cannon (1997) suggest that a focal firm may confer trustworthiness upon a partner through the provision of positive statements about its experience with the partner. Likewise, Anderson and Narus (p. 45) suggest a positive link between trust and communication, and noted that the ?accumulation of trust leads to better communication.? Morgan and Hunt suggest that effective communication leads to relationship commitment, defined as an exchange partner believing that an ongoing relationship with another is so important as to warrant maximum efforts at maintaining it.

Types of Communications

There are two forms of communication in e-commerce relationships, namely the transactional and relational components of communication. The transactional component of communication is reflected in the more formal and precise reporting of outcomes and results. Transactional attributes of communication include the accuracy, timeliness, adequacy, correctness, and credibility of information exchanged between the partners (Mohr & Spekman, 1994). We suggest that technology trust sets the stage for initial trust. From a transactional perspective, trust in the technology contributes to satisfaction, commitment, and intentions to continue.

In contrast, the relational component of communication is reflected in the bargaining and negotiation between the partners. Similar to the information-sharing and participation aspects of communication identified by Mohr and Spekman (1994), trading partners share information and engage in joint planning and goal setting. The intent is to engage in conversations that become increasingly revealing to set the stage for the reciprocal sharing of information and increased risk taking. The higher the trust the buyers have in their suppliers, the more they will be inclined to exhibit positive behaviors, keep promises, and show care and concern. We argue that the role of relationship trust supports a positive relationship evidenced by cooperation, information sharing, satisfaction, and commitment leading to relationship continuity. Similarly, previous research suggests that there is a positive relationship between trust and commitment (Doney & Cannon, 1997; Ganesan, 1994).

CONCLUSION

This study explored the role of e-technologies in supply chain management and its impact on the role of communication for management and trust. The study contributes to theory by extending the existing literature on e-commerce and trust. Furthermore, the study also contributes to practice as e-commerce practitioners will be made aware of the evolving nature of technology, management, and the role of trust. Future research should aim to examine each type of e-technology in greater depth as multiple case studies in order to derive a generic model showing the link between the evolution of different types of e-technologies and trust.

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