FACTORS AFFECTING CUSTOMER TRUST IN ONLINE SHOPPING IN VIETNAM

This study aims to identify which ones of the four antecedents of trust privacy protection, security protection, perceived risk, and perceived benefits have impacts on customer trust in

International School of Business

MASTER OF BUSINESS (Honours)

SUPERVISOR: Dr NGUYEN HUU LAM

Apart from the efforts of me, the success of this thesis is depended largely on the encouragement and guidelines of many others Especially, Dr Nguyen Huu Lam and Associate Prof Dr Nguyen Dinh Tho have been instrumental in the successful completion of this study I would like to take this opportunity to express my gratitude

to them and I really appreciate with their tremendous support and help I feel motivated and encouraged every time I attend his meeting Without his encouragement and guidance, this project would not have materialized

Besides, I would like to thank my close classmates and staffs working at International School of Business – UEH including Nguyen Thanh Huong, Huynh Ngoc Duy, Thai Thi Thu Giang, and Nguyen Thi Ngoc Lien for their guidance and support

Ho Chi Minh City, Jan 1 st 2013

Tran Minh

List of Tables iv

List of Figures v

List of Appendix vi

Chapter One: Introduction 1

1 Background 1

1.1 The Internet in Vietnam 1

1.2 Online shopping in Vietnam 1

2 Statement of purpose 2

3 Research question 3

4 Significance of the study 3

5 Scope of the study 3

6 Structure of the study 3

Chapter Two: Literature Review 5

1 Trust in online shopping 5

1.1 Definition of trust in e-commerce 5

1.2 The importance of trust in e-commerce 15

2 Trust antecedents identified in the literature 16

2.1 Perceived privacy and security protection 16

2.2 Perceived risks and benefits 18

Chapter Three: Methodology 20

1 Participants 20

2 Instruments 20

3 Samples and data collection procedures 24

4 Data analysis 24

Chapter Four: Results 26

1 Characteristics of the sample population 26

2 Reliability of measurement instruments 28

3 Tests of regression assumptions 37

3.1 Test of multicollinearity 37

3.2 Test of normality of residual & heteroscedasticity 38

4 Evaluating demographic variables’ impacts on customers’ trust 38

5 Hypotheses testing 39

6 Summary of the results 41

Chapter Five: Discussion 43

1 Findings 43

2 Implications 44

3 Conclusion 45

4 Limitations and directions for future research 45

References 46

WTO World Trade Organization

APEC Asia-Pacific Economic Cooperation

SPSS Statistical Package for the Social Sciences

TVE Total Variance Extracted

VIF Variance Inflation Factor

Table 2.1 Summary of prior conceptualizations of trust 6

Table 3.1 Privacy protection and security protection scales 21

Table 3.2 Perceived risk and perceived benefits scales 22

Table 3.3 Customer trust scale 23

Table 4.1 Distribution of respondents based on demographic characteristics 27

Table 4.2 Item-Total Statistics 29

Table 4.3 Total Variance Explained 34

Table 4.4 Pattern Matrixa 35

Table 4.5 Item-Total Statistics 36

Table 4.6 Model Summary 39

Table 4.7 ANOVAb 39

Table 4.8 Coefficients a 40

Figure 1 Conceptual Model 19 Figure 2 Results of testing the conceptual model 42

Appendix A Customer Survey Form 51

Appendix B Graphs 57

Graph 1 Regression Standadized Residual 57

Graph 2 Normal P-P plot of regression standardized residual 57

Graph 3 Scatterplot 58

1 Background

It has been more than one decade since the Internet started to have been used in Vietnam Vietnam connected the world in 2000, the Internet users was a small figures, just 0.3% of the population in 2000 However, the Internet is growing fast, much faster than in any other Asian countries in 2011 Over the last ten years 2000-2010, Internet usage has grown by 12.4 times in Vietnam This is the highest level of penetration in the Asian countries After five years from 2000, this number was up to 12.8%; and 17.9% in 2007; 24.0% in 2008; and 25.7% of Vietnam population in 2009 Impressively, este et al (2012) suggest that a large number of Vietnamese Internet users accounted for 30.8 million at the end of Feb 2012, equivalent to 34% of Vietnam population More and more people are online and in Vietnam, they spend a massive amount of time on the Internet There is a huge, targetable population of consumers online As to Feb 2012, 30.8 million Vietnamese people can be reached on the Internet, with a strong growth every year In addition, these are not just the teenagers, but also more and more also their parents and in general, the household decision makers, an interesting target audience for marketing activities They are also increasingly comfortable with making purchases online

The internet is changing the way consumers shop and buy goods and services, and has rapidly evolved into a global phenomenon and even in Vietnam Many companies have started using the Internet with the aim of cutting marketing costs, thereby reducing the price of their products and services in order to stay ahead in highly competitive markets Customers use the Internet not only to compare prices,

user in Vietnam has already visited sites that offer online shopping, buy and sell activities or auctions Este et al (2012) suggest that the most of customers purchasing online is just a small piece of big potential e-commerce market and online shopping activities are mainly common in the north and in big cities, whilst in smaller cities it is not yet frequent Hanoi is the undisputed leader in e-commerce with 60 per cent of Hanoi net citizens using these sites

To advance its e-commerce to improve businesses’ competitiveness thus boosting the country’s industrialization and modernization, Vietnam government approved a plan on e-commerce for the next 5 years 2011 – 2015 last year This decision helps concretize Vietnam’s commitments for international integration with WTO, APEC and ASEM Although e-commerce purchases in early stage market in Vietnam, the high young generation population and great coming opportunities closer promises the strongest growth in online shopping area However, the major problem in the area of online shopping is the low confidence in online payment systems Este et al (2012) suggest that one of the key factor to explain for this is that people does not trust

in Internet shopping Therefore, studying trust is considered as a vital key for individuals or organizations to maintain and build customer’s trust so in Internet shopping that the growth of e-commerce can be speeded up for the coming years in Vietnam

This study aims to identify which ones of the four antecedents of trust (privacy protection, security protection, perceived risk, and perceived benefits) have impacts on customer trust in online in shopping in Vietnam

perceptions about the risks and benefits during the transaction on the Internet

In terms of theory, this study provides an empirical understanding role of factor trust towards online shopping; And in terms of practice, this study presents strategic implications and directions for the development of online shopping in Vietnam

The study focuses on collecting people having experience in the online shopping

Ho Chi Minh City The city is selected due to the highest Internet penetration rate Este

et al (2012) suggest that the Internet penetration rate is more than 50% the population have used the Internet already in urban Vietnam The city is higher than the average rate of 50% of the population with the rate 62% in 2011

The thesis consists of five chapters Chapter 1 introduces an overview of the background, statement of purpose, research question, the significance of the study, and scope of the study Chapter 2 reviews existing literature on trust, online customer trust, and the four antecedents of trust These literatures summarize briefly the knowledge of recent studies, describes the conceptual model, and hypotheses Chapter 3 presents who participate in this study, instruments used to measure the research constructs, the description of the samples, data collection procedures and data analysis Chapter 4 describes characteristics of the sample In addition, validity and reliability of measures will be checked by coefficients of Cronbach‘s Alpha and EFA (Principle Axis

contributions, practical implications, and limitations of the current research are also discussed Suggestions for future research will conclude this dissertation

1 Trust in online shopping

Trust definition in Internet shopping is a quite complicated concept in commerce field Depending on different contexts, researchers offer different meanings

e-As Table 2.1 shows below, trust is viewed as 1) A set of specific beliefs (Doney & Cannon 1997; Ganesan 1994) 2) A general belief that another party can be trusted (Gefen 2000; Hosmer 1995; Moorman et al 1992) 3) Affect reflected in “feelings” of confidence and security 4) A combination of three elements mentioned above Based

on trust objects, trust has been conceptualized as a specific and general belief Some of them describe the specific beliefs as antecedents to the general beliefs (Jarvenpaa and Tractinsky, 1999; Mayer and Davis, 1999; Mayer et al., 1995; Jarvenpaa and Tractinsky, 1999) or sometimes conceptualize the specific beliefs as antecedents to trusting intentions (McKnight et al., 1998) The others conceptualize trust as general beliefs in e-commerce contexts that leads to behavorial intentions (Gefen, 2000); as a combination of intergrity and caring that leads to an increase in behavioral intentions to vulnerability (Javenpaa and Tractinsky, 1999); as a specific belief dealing with benevolence, competence, and intergrity that results in trusting intentions (McKnight et al., 2002)

However, the distinction between trust as a set of specific and general belief is primarly happened dealing with interpersonal trust in organizational settings (McAllister, 1995; McKnight et al., 1998) However, this distinction is seldom occured

in economic transaction settings because the definition of trust is used in these contexts

is an extension of trust definition rather than the original definition of interpersional trust (Hosmer, 1995; Williamson, 1985) Consequently, some researchers stated that

economic relationships (Crosby et al., 1990; Doney and Cannon, 1997; Ganesan, 1994; Schurr and Ozanne, 1985) and this set of specific beliefs is most widely used in the literature Therefore, Trust as a feeling (Rempel et al., 1985) has been previously studied in the context of interpersonal relationships It is arguably irrelevant to business transaction (see Table 2.1)

Table 2.1 Summary of prior conceptualizations of trust

Business relationships

Overall trust

Bustler

(1991)

Two sub-constructs:

1 Attitude affective trust

2 Cognitive specific trust

Organizational Measure of overall

Buyer-seller relationships

Empirical: overall trust, caring, integrity

Doney and

Cannon

(1997)

Perceived credibility (integrity) and benevolence

Buyer-seller relationships

Honesty, caring, trustworthy Source: Gefen, David; Karahanna, Elena; Straub, Detmar W (2003, p 56-59)

Culture Conceptual

Fukuyama

(1995)

Expectation of regular, honest, cooperative behavior

Business relationships

Conceptual Conceptual

Ganesan

(1994)

Willingness to rely on a partner in whom one has confidence based on belief

in that party's credibility (integrity and ability) and benevolence

Buyer-seller relationships

Empirical:

1 Credibility (ability and

reliability/honesty)

2 Benevolence Source: Gefen, David; Karahanna, Elena; Straub, Detmar W (2003, p 56-59)

Gefen

(2000)

Willingness to depend E-commerce Empirical: overall

trust Gefen

(2000a)

Willingness to depend E-commerce Empirical: overall

trust Gefen

(2000b)

Willingness to depend based

on beliefs in ability, benevolence, and integrity

Business relationships

Empirical: a single scale with items dealing with ability, integrity, and

Business relationships

Empirical: a single scale with items dealing with ability, integrity, and

benevolence

Giffin

(1967)

Reliance on the characteristics of another in

a risky situation

Literature review

Conceptual: integrity, benevolence, and ability

Empirical: indirect measurement

Business relationships

Conceptual

Source: Gefen, David; Karahanna, Elena; Straub, Detmar W (2003, p 56-59)

Hosmer

(1995) The expectation of ethical behavior, related to the

willingness to rely on the trusted party based on optimistic expectations that the trusted party will behave

in a morally correct manner

Literature review

Online student teams

Empirical: overall trust that is built through beliefs in ability, benevolence, and integrity

trust combined with integrity, and caring

Jarvenpaa

et at

(2000)

A governance mechanism in buyer-seller relationships

trust combined with integrity, and caring Source: Gefen, David; Karahanna, Elena; Straub, Detmar W (2003, p 56-59)

Korsgaard

et al

(1995)

Confidence in the goodwill

of the leader, meaning honesty, sincerity, and being unbiased

Interpersonal trust in organizational settings

Source: Gefen, David; Karahanna, Elena; Straub, Detmar W (2003, p 56-59)

Integrity and benevolence

Luhmann

(1988)

Willingness to behave based

on expectation about the behavior of others when considering the risk involved

Mayer and

Davis

(1999)

Willingness to be vulnerable

Interpersonal trust in organizational settings

Empirical: overall trust, which is separate from trustworthiness that is defined as ability, benevolence, and integrity

Empirical:

1 Cognitive-based trust (ability, trust, monitor)

2 Affect-based trust (share ideas and feelings, emotional investment)

Source: Gefen, David; Karahanna, Elena; Straub, Detmar W (2003, p 56-59)

Interpersonal trust in organizational settings

2 Resulting in trusting intentions measuring

willingness aspects to interact with an e-vendor

Mishra

(1996)

Willingness to be vulnerable based on belief that the other party is competent, open, concerned, and reliable

Interpersonal trust in organizational settings

Conceptual

Source: Gefen, David; Karahanna, Elena; Straub, Detmar W (2003, p 56-59)

Study Trust Conceptualization Trust Object Measures

2 Confidence and support

Interpersonal trust in organizational settings

Empirical:

1 Integrity, character, ability of others

2 Confidence and support

Moorman

et al

(1992)

Willingness to depend It is both a belief about the other party and a behavioral intention

Business relationships

Empirical: overall trust

Morgan

and Hunt

(1994)

Willingness to depend on a party in whom one has confidence Sam as Moorman et at (192)

Business relationships

Empirical: overall trust and integrity

Empirical: overall trust

Source: Gefen, David; Karahanna, Elena; Straub, Detmar W (2003, p 56-59)

Study Trust Conceptualization Trust Object Measures

Rempel et

al (1985)

Willingness to depend based

on a generalized expectation/confidence about what others will do

Interpersonal trust in close relationships

Empirical: overall trust, benevolence, predictability, and honesty

Rotter

(1971)

The expectation that one's word or promise can be relied upon

Rousseau

et al

(1998)

Willingness to be vulnerable based on confidence in positive expectations about the intentions and behavior will be fulfilled

Buyer-seller relationships

Trust was manipulated in an experiment The manipulation check dealt with

trustworthiness combined with fairness, dependability, and openness

Empirical: fairness, non-opportunistic, keep promises, and is trustworthy

Source: Gefen, David; Karahanna, Elena; Straub, Detmar W (2003, p 56-59)

Study Trust Conceptualization Trust Object Measures Zaheer et

Empirical: fairness, non-opportunistic, keep promises, and is trustworthy

Trust was manipulated in an experiment

Zucker

(1986)

Set of expectations, an implicit contract

Business relationships

Conceptual Source: Gefen, David; Karahanna, Elena; Straub, Detmar W (2003, p 56-59)

Trust plays such an important role between sell site and buy site, especially these containing the element risk including interacting with an e-vendor (Reichheld and Schefter 2000) It is one’s belief that the other party will behave in a dependable (Kumar

et al., 1995a), ethical (Hosmer, 1995), and socially appropriate manner (Zucker, 1986) Trust is also deal with fulfillment (Luhmann, 1979; Rotter, 1971) Lack of trust is one of the most frequently cited reasons for consumers not shopping on the Internet (Lee and Turban, 2001) Trust becomes a serious issue in Internet shopping because there is an absence of proven guarantees Jarvenpaa and Tractinsky (1999) and Reichheld and Schefter (2000) suggested that online customers generally stay away from e-vendors who they do not trust on

This study builds upon previous research by combining several trust antecedents in order to provide insights to online firms conducting business in different parts of the world The model suggests that trust in Internet shopping is directly affected The model assumes that their cultural backgrounds influence consumers’ perceptions (see Table 1) The results of this study will identify which factors having significant effects and having

an important role in the generation of customer trust in an online environment (e.g., McKnight et al., 2002; Lee and Turban, 2001) The literature provides considerable evidence that a number of factors have strong predictive importance and are therefore deserving of consideration in any examination of the construct These factors include the influence of perceived privacy, security protection, perceived risks and benefits (Lee and Turban, 2001; Gefen, 2000)

Lallmahamood (2007) define perceived security and privacy as “user’s perception

of protection against security threats and control of their personal data information in an online environment On the whole, perceived security and privacy is about the self-belief that a user has in the system to conclude a transaction securely and to maintain the privacy of personal information” (2007, p 7)

Privacy protection is widely considered as one of the most important factors in

building e-trust (Hoffman et al (1999); Jorgensen (2000); Shankar et al (2002)) The

privacy issue is considered as the major concerns of the online shoppers (Egelman, Tsai, Cranor and Acquisti, 2004) Customers cannot avoid being leaked out their private information over the Internet due to risk in the transaction (Monsuwe et al., 2004) Because of using web to carry out transactions, customers face security, encryption, and

transactional privacy issues (Grewal et al., 2004)

enter on would be intercepted or stolen or not during the transmission on the Internet (Koufaris, 2004) Riegelsberger and Sasse (2001) find that concerning about whether information of credit cards gets intercepted and information of the transaction is correctly transmitted

Bierhoff and Vornefeld (2004) states that:

Although the Internet is a technical system with strict, built-in security measures, it

is managed, maintained, and used by humans and therefore will never be able as a system to guarantee perfect security (p 48)

Customers would be easier to trust if security is guaranteed Web vendors have an ability to provide a secure website; this would play such an important part in implementation and success of shopping on Internet (Ruppel, Underwood-Queen and Harrington, 2006) Furthermore, “if a virtual store is not able to effectively demonstrate its commitment to superior data security technologies, few consumers will feel comfortable entrusting the virtual store with their sensitive information” (Chen & Tan,

Security and privacy in online shopping have a positive association with trust in Internet shopping (Monsuwe et al., 2004) A high level of security and privacy in online shopping experience has a positive effect on consumer trust (Ilagan, Sheila de Villa,

H2 Security protection of a web has a positive effect on consumers’ trust in

Internet shopping

Ko, Jung, Kim, and Shim (2004) defines perceived risk as “the potential for loss in pursuing a desired outcome when engaged in online shopping” (section 1, para 3) The concept of risk involves both uncertainty (Lewis and Weigert, 1985) and vulnerability (Barney and Hansen, 1994) “The consumers’ perception of risk associated with the transaction will tend to predominate in his/her decision to engage in a transaction” (Salam, Rao, & Pegels, 2003, p 328)

Some researchers have the same finding the less perceived risks associated with online buying, the more willingly consumers disclose personal information, and the more trust a person has in the online store (Corritore et al., 2003; Jarvenpaa et al., 2000; Kim et al., 2008; Olivero & Lunt, 2004; Salam et al., 2003; Teo & Liu, 2007; Van der Heijden et al., 2003) Perceived risk has a negative effect on building e-trust (Chen and Tan, 2004) Ilagan, Sheila de Villa (2009) shows that perceived risk is a significant predictor of trust

H4 Perceived benefits have a positive effect on consumers’ trust in Internet

shopping

Lee and Turban’s (2001) propose the conceptual model for customer’s trust in Internets shopping but it is modified to accommodate four antecedents of trust and fit the purpose of the study On the other hand, this study also examines whether demographic variables make additional contributions to the prediction produced by the four antecedent variables of trust

The model suggests that trust in Internet shopping is directly affected general perceptions about privacy protection, security protection of the web, and perceived risks and benefits

Figure 1 Conceptual model

H2 (+)

Customer Trust in Internet Shopping (CTIS)

Privacy Perceptions (PP)

Security Protection (SP)

Perceived Risks (PR)

1 Participants

This study used convenience sampling and purposive sampling to recruit Vietnamese students, white – collar workers who had ever bought goods, services online and used electronic system payments to pay for them in different districts in Ho Chi Minh City They had been choosen randomly to answer the questionnaires The data was collected from October to mid – November 2012

In order to gather the necessary information, survey questions were adopted from previous researches and modified for this study The self – administered questionnaires were divided into two sections including 36 questions that consist of 4 socio-demographic questions and 32 questions using a 5-point Likert scale measuring the research constructs Part I includes 32 questions in term of the independent variables and the dependent variable The respondents were required to provide their rating on their perception using

a five-point Likert scale measurement that ranged from 1 = strongly disagree, 2 = disagree, 3 = neutral, 4 = agree, and 5 = strongly agree Part II is proposed to collect the respondents’ demographic information such as gender, age, highest academic qualification, average monthly income level

General perceptions about privacy and security protection

General perceptions about privacy and security protection have the same of six items used to measure these two scales adopted by Kim et al (2008) (see Table 3.1) Kim

et al (2008) states that these scales reached the high level of internal consistency with coefficient alpha 90 for general perceptions about privacy and 86 for security protection

PP1 I am concerned that unauthorized persons (e.g., hackers) have access to my

personal information

PP2 I am concerned that Web vendors will share my personal information with

other entities without my authorization

PP3 I am concerned about the privacy of my personal information during a

transaction

PP4 I am concerned that Web sites are collecting too much personal information

PP5 I am concerned that Web vendors will use my personal information for other

purposes without my authorization

PP6 I am concerned that Web vendors will sell my personal information to others

without my permission

Items Security protection (Cronbach's Alpha = 0.860; N of Items = 6)

SP1 In general, providing credit card information online is riskier than providing it

over the phone to an offline vendor

SP2

Internet merchants usually ensure that transactional information is protected from accidentally being altered or destroyed during a transmission on the

Internet

SP3 I feel secure about the electronic payment system of Internet merchants

SP4 Internet merchants implement security measures to protect Internet shoppers

SP5 I am willing to use a credit card to make purchases online

SP6 I feel safe making transactions online

Perceived risks and benefits

Teo and Liu (2007) suggest using four items to measure perceived risks while six items are used for perceived benefits adopted by Chen et al (2002) However, the six

information seeking.” (see Table 3.2) This transformation makes the number of items increased by twelve items from six items (see Table 3.2) Teo and Liu (2007) state that four items used to measure perceived risks have a composite reliability 92 and Chen et al (2002) support the construct using to measure the perceived benefits scale by giving out the composite reliability 84

Table 3.2 Perceived risk and perceived benefits scales Items Perceived risks (Cronbach's Alpha = 0.920 ; N of Items = 4)

PR1 I believe that the risk of purchasing online is very high

PR2 There is a high probability of losing a great deal by purchasing from Internet

PB1 Using the virtual store enables me to accomplish shopping more quickly than

traditional stores

PB2 Using the virtual store enables me to accomplish information seeking more

quickly than traditional stores

PB3 Using the virtual store improves my performance in shopping (e.g., save

Items Perceived benefits (Cronbach's Alpha = 0.840; N of Items = 12)

PB6 Using the virtual store increases my productivity in information seeking (e.g.,

find product information within the shortest time frame)

PB7 Using the virtual store enhances my effectiveness in shopping (e.g., get the best

deal)

PB8 Using the virtual store enhances my effectiveness information seeking (e.g.,

find the most important information about a product.)

PB9 Using the virtual store makes it easier for me to shop

PB10 Using the virtual store makes it easier for me to find information

PB11 I find the virtual store very useful in my shopping

PB12 I find the virtual store very useful in information seeking

Customer trust in Internet shopping

Four items adopted by Lee and Turban (2001) are used to measure customer trust

in Internet shopping based on high coefficient alpha 70 (see Table 3.3)

Table 3.3 Customer trust scale

Items Customer trust in internet shopping (Cronbach's Alpha = 0.700; N of

Items = 4)

CTIS1 In general, I cannot rely on Internet vendors to keep the promises that they

make

CTIS2 Internet shopping cannot be trusted, there are just too many uncertainties

CTIS3 Anyone trusting Internet shopping is asking for trouble

CTIS4 Internet shopping is unreliable

conducted in Ho Chi Minh City The pilot survey was undertaken in two stages, qualitative and quantitative stage Four respondents were recruitted to participate in in-depth interviews to modified and refine the scale items And then a quantitative pilot survey was undertaken with a convenience sample Characteristics of respondents were gender, age, education level, and monthly average income This study targeted respondents age from 17 to 45 Data collectors distributed the questionnaire to customers directly and via their e-mail addresses with instruction of how to complete the questionnaire In order to know who have ever bought good or services online and paid for them by ATM, credit card, or a digital wallet, data collectors used filter question In the other hand, to prevent respondent to choose the number that indicates the level of their agreement or disagreement, the collector also emphasized that online shoppers could withdraw from this questionnaire at any time After completing the questionnaire, the collector check whether there was a response bias and the questions were answered without reading The purpose of this study was to validate measures and to test the relationship between the four antecedents and customer trust in online shopping Statistical package for the social sciences version 19 was used to analyze the data The number of questions used to get respondents’ ideas was 32 not including 4 ones for demographic variables Based on this, the minimum size of the sample the study needed was 160 However, to improve validity and reliability of this study, collectors made decision to increase the sample size to 250 However, 34 questionnaires were unable to use for due the high response rates of bias Hence, the final sample size was 216 See Table 4.1 for the sample characteristics

In terms of data analysis, a descriptive analysis was innitially performed to provide