An examination of the nature of trust in logistics outsourcing relationship. Empirical evidence from China
| Pages | 346-367 |
| Date | 21 March 2008 |
| DOI | https://doi.org/10.1108/02635570810858769 |
| Published date | 21 March 2008 |
| Author | Yu Tian,Fujun Lai,Francis Daniel |
| Subject Matter | Economics,Information & knowledge management,Management science & operations |
An examination of the nature
of trust in logistics
outsourcing relationship
Empirical evidence from China
Yu Tian
School of Management, Sun Yat-Sen University, Guangzhou,
People’s Republic of China, and
Fujun Lai and Francis Daniel
College of Business, University of Southern Mississippi – Gulf Coast,
Long Beach, Mississippi, USA
Abstract
Purpose – Using China’s burgeoning logistics industry as a backdrop, the present study focused on
how to build trust between logistics users and third-party logistics (3PL) providers, and the
antecedents and consequences of trust.
Design/methodology/approach – A questionnaire-based mail survey was conducted in mainland
China. The conceptual model was tested using structural equation modeling.
Findings – The findings indicate that logistics users’ satisfaction with prior interactions with
logistics providers, 3PL provider’s relationship-specific investment, 3PL provider’s information
sharing, and 3PL provider’s reputation are key determinants of logistics users’ level of trust towards
3PL providers. Additionally, logistics users’ trust may facilitate their loyalty behavior towards 3PL
providers.
Research limitations/implications – The findings were drawn from a Chinese setting in which
logistics outsourcing is in a relatively early developmental stage. The uniqueness of Chinese culture
may also limit the findings’ generalizability. China’s transitional economy was not considered in the
study. Different company ownership may significantly influence relationship formulation,
maintenance and consequences.
Practical implications – The findings demonstrated how logistics providers can improve
customers’ trust in logistics outsourcing relationships. The study also revealed how logistics
providers can improve customers’ loyalty.
Originality/value – This paper was a pioneering study that investigates the logistics outsourcing
relationship in China, a rapidly growing economy. The results offered valuable managerial insights
regarding how to cultivate trust and loyalty in logistics outsourcing relationships.
Keywords Trust, Outsourcing,Distribution management, China
Paper type Research paper
Introduction
Logistics outsourcing has become a rapidly expanding source of competitive
advantage and logistics cost savings (Mitra, 2006; Perrons and Platts, 2005; Rabinovich
et al., 1999). With increased global competition and higher customer expectations, an
The current issue and full text archive of this journal is available at
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This research is supported by the National Natural Science Foundation of China (No. 70302010).
IMDS
108,3
346
Received 21 June 2007
Revised 28 August 2007
Accepted 24 September
2007
Industrial Management & Data
Systems
Vol. 108 No. 3, 2008
pp. 346-367
qEmerald Group Publishing Limited
0263-5577
DOI 10.1108/02635570810858769
increasing number of companies are outsourcing their logistics activities to third-party
logistics (3PL) firms so that they can concentrate on their core competencie s
(Vaidyanathan, 2005).
Logistics is one of the fastest growing industries in China. In 2004, logistics
contributed 845.9 billion RMB Yuan of added value, which is 6 percent of GDP, and
19.5 percent of the service sector’s value-added (Ou, 2006). China’s entry into the World
Trade Organization has its logistics industry primed for still more rapid growth.
However, logistics expenditures accounted on average for 21.8 percent of China’s gross
domestic product during 1992-2004 (Logistic Information Center of China, and China
Federation of Logistics and Purchasing, 2005), compared to only 10 percent in
developed countries (Goh and Ling, 2003). Therefore, reducing logistics costs is critical
to improving Chinese companies’ competitiveness. The increasing competition and
mounting pressure for cost reduction in China’s logistics industry is forcing its 3PL
providers to review and adjust competitive strategies to attract and retain customers.
This study addresses an important issue China’s 3PL providers must consider when
making these strategic adjustments. Trust between 3PL providers and logistics users
has proven a key factor in the success of logistics outsourcing relationships (LaLonde
and Cooper, 1989; Minahan, 1997; Moore, 1998). Indeed, LaLonde (2002, p. 10) argues,
“Issues of trust and risk can be significantly more important in supply chain
relationships, because supply chain relationships often involve a higher degree of
interdependency between companies”. High-trust levels in logistics outsourcing
relationships reduce transaction and agency costs (Beccerra and Gupta, 1999; Dyer and
Chu, 2000). Trust also improves creativity and interorganizational learning (Arnulf
et al., 2005), and builds organizational capabilities (Corsten and Kumar, 2005). Johnston
et al. (2004) found that high-trust levels were associated with increases in cooperative
behavior among logistics outsourcing partners, which in turn led to higher partnership
performance levels. Finally, Dyer and Chu (2000) suggest that unlike other forms of
governance mechanisms (contracts, financial hostages, etc.), trust has the unique
capacity to create value beyond transaction cost reductions and can therefore be a
source of substantial competitive advantage for logistics outsourcing partnerships.
Conversely, lack of trust has been cited as the single most significant obstacle to the
successful formation and maintenance of supply chain strategic alliances, accounting
for fully one-third of failures in such relationships (Sherman and Sookdeo, 1992). The
lack of trust among relationship partners often results in decreased productivity,
efficiency and effectiveness, as partners spend an inordinate amount of time
scrutinizing transactions and analyzing each other’s credibility, reliability and
trustworthiness (Kwon and Suh, 2004). Bowersox (1990) argues that a logistic s
outsourcing relationship should have a high degree of trust between partners and that
failure to build trust early in the relationship may negatively affect its ultimate success.
Despite the demonstrated importance of trust, studies addressing the determinants
and consequences of trust in logistics outsourcing relationships are limited (Maloni and
Carter, 2006; Mitra, 2006). Given the dramatic rise in global sourcing of all kinds, and
logistics in particular, gaining insight into the large and culturally complex 3PL
markets of China might prove an important source of competitive advantage to the
growing number of foreign companies competing there. There is a challenge in
applying western-derived theory in China, where the marketplace has not been
traditionally capitalistic, and where rapid economic growth, social transition, and a
Logistics
outsourcing
relationship
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