DOES BEING CENTRAL IN FORMAL NETWORK IMPROVE TRUST PROJECTION? A SOCIAL NETWORK ANALYSIS OF SUPPLY NETWORK STRUCTURE

Background: This research attempts to extend the understanding and application of embeddedeness theory beyond the general network structure. Previous research on network analysis largely focused on the context of the decentralized network structure and how it impacts on the performance of the network member. However, each member of a supply network is embedded in a centralized network structure. The focal firm often plays the commanding role in such structure. Thus, the supply network is a centralized network because of the existence of the focal firm. The existence of the focal firm may influence the impact of firm performance, particularly on the generation of relational capital. Hence, the objective of this research is to determine how formality derives from the centralization of the supply network and influences trust projection in the supply network structure so that it is possible to organize supply network resources to their optimum capacity. Methods: Basing on the previously applied approach of Social Network Analysis from the sociology research field, we adopted the Social Network Analysis methodology to collect data on supply network connectivity or relations. Using an Exponential Random Graph Model [ERGM], we developed a random search algorithm for network relational capital optimization. Exponential Random Graph Modeling [ERGM] is a statistical method for modeling the generative processes that create social networks. In ERGM, the log-odds of a tie between members of a dyad of nodes or actors in the network are essentially modeled using an exponential form analogous to logistic regressions. Results: The findings of this study indicate that centrality negatively influences trust projection in the supply network. Hence, a firm embedded in upstream supply network benefits differently in terms of relational capital through the different degree of embeddedness. The firm's resources should be re-aligned to match the benefits of the different network structural positions. Conclusion: The results of the statistical network analysis reveal interesting findings in terms of prominent structural forms and the impact of involvement or embeddedness in the formal of a supply network. What this means is that the more embedded a firm is in the upstream supply network based on the formal contract tie, the less the likelihood that it will be perceived as trustworthy by other network members. Consequently, this tells us that firms' embbededness in a centralized network structure which is based on a formal contract ties have a negative impact on the firms' level of trust perception.