6 Trust and Risk in Business Networks: Towards a Due Diligence for Electronic Commerce
Figure 1. Starting point for conceptual framework
3.1 Transaction decision making principles
Transaction decisions are embedded in the transaction scenario (see Figure 2. Principles of
transaction decision making 2, see also Tan, Thoen, 2001):
• the transaction situation with potential gains and advantages as well as risks and
uncertainties for the company regarding the outcome and trust and control mecha-
nisms in the transaction itself,
• the decision makers’ individual perception and estimation of these gains, advantages,
uncertainties, and risks as the perception of the relative performance of a transaction
partner is essential in business-to-business transactions (Backhaus, 1990), and
• the transaction environment with external influences, including safeguards and con-
trol mechanisms as well as hazards and risks.
An individual would only take a transaction decision if perceived hazards and risks from the
transaction are compensated by either expected potential gains from the transaction along with
the company’s strategy and objectives, an appropriate combination of trust and control mecha-
nisms for the transaction, or a combination of both. The relationship between risks, gain, trust
and control in a decision situation such as a transaction is highly complex (see Luhmann,
2000). Trust and control as determinants for transaction behavior have their origin in both the
external transaction environment and the concrete transaction situation. Trust and control are
inseparably linked, have a mutually reinforcing relation, are to a certain degree interchange-
able (Lindgreen, 2003) and inversely proportional and contribute to the transaction decision by
reducing the perceived uncertainty and risk (Selnes, 1998; Zak, Knack, 2001; Dyer, 1997).
Examples are trust in the transaction partner, long term relationships, company networks, rep-
utation, formal and informal control and security mechanisms such as quality signs, or produc-
tion contracts (Gulati, Nohria, Zaheer, 2000; Ménard, Klein, 2004; Fearne et al., 2001).