Chapter 4: Institutional Differences and the Value of Identity Bridging Role of Trust in Cross-Border Alliances

Prior research has highlighted the importance of trust in facilitating mutual identification between alliance partners which is generally agreed to be beneficial. Yet, there might be conditions under which this quality of trust does not yield the expected benefits. We hypothesize that in alliances between emerging economy and developed country firms, although mutual identification fostered by trust allows alliance partners to overcome organizational institutional differences at the micro level that otherwise would hamper alliance functioning, the very same quality of trust can be a liability under regulatory institutional differences at the macro level that would require each alliance partner to maintain their independent identities. Our findings, based on a survey sample of 167 international strategic alliances of firms in Latin America, confirm that whereas trust benefits alliance performance under organizational institutional differences, it hinders performance under regulatory institutional differences.