Center for Activity Theory and Developmental Work Research

Tuunainen, J. & Miettinen, R. (manuscript) Building Trust and Making Contracts in Product Development Collaboration.

There are three main positions concerning the relationship between trust and contracts in inter-firm collaboration. Transaction cost economics states that trust has no role in the management of relationships between rational economic actors. New economic sociology holds that trust is an alternative to formal contractual arrangements. Finally, a mediating position finds trust and contracts as complementary mechanisms of governing inter-firm relationships. To avoid a simplistic framework based on the juxtaposition between trust and contracts, we analyse the formation of trust during a joint product development project by two biotechnology firms. In this context, contracts are analysed as instruments of cooperation and trust construction in relation to several other means, such as product seminars in marketing collaboration and parallel experimenting in product development. The marketing collaboration proved vital for the formation of the initial trust and ultimately led into the joint product development project between the partners. Formal contracts, on the other hand, were a necessary but not sufficient means of building trust. They contributed to the intentional trust between the partners, but did not play a role in the formation of competence trust. The major mechanisms in the building of the competence trust included doing parallel experiments as well as adhering to agreed rules and work schedules.