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Abstract

Vulnerability is salient among international managers, who tend to be wary when operating in transition economies like China. Systematic research is lacking, though, on how the local environment influences foreign managers’ perception of vulnerability, and how foreign managers can develop trust even when their perceived vulnerability is high. We conducted in-depth case studies of two foreign-controlled enterprises in China, and developed a theoretical model that links perceptions of the macro-level environment to micro-level management. Our results illustrate the antecedents and consequences of perceived vulnerability and the processes of trust building in unfavorable environments. Through comparative analysis of the two cases, we found that the foreign managers’ perceived vulnerability was shaped by the institutional,
technological, and market conditions of the local environment, and we learned how this perceived vulnerability influenced their trust in the local workforce and the joint investment in formal and social control they used in building trust.
The effect of perceived vulnerability on trust was moderated over time when the implementation of control was combined with active investments in trust, which led to behavioral changes on the part of the local employees, which in turn increased their trustworthiness. The implications of these findings are discussed.