The significance of trust in business relocation

In the modern global economy, firms frequently face pressures to move certain corporate functions abroad in order to take advantage of lower production costs and tap into new emerging markets for their products and services. This paper examines how social factors shape companies’ behavior in business relocation, using original fieldwork data collected from Taiwanese computer industry during their relocation to China. In addition to market uncertainty, companies encounter an institutional uncertainty during the process of relocation, as they are adjusting to different sets of actors and rules of game in the local environment. To reduce this uncertainty that threatened their survival, Taiwanese computer companies relied on trust, particularly from partners in their pre-existing production networks. Besides being reliable business associates, these partners were sources of trustworthy information, emotional support, and stability in the uncertain Chinese environment. Being a part of the group also created a sense of security and possible greater bargaining power of Taiwanese companies vis-à-vis Chinese local governments. This paper suggests this greater reliance on trust from fellow Taiwanese partners have contributed to these firms’ relocation in group, with many migrated to locations approximate to their partners.