Keywords

Manufacturing Strategy, Competitive Strategy, Business Performance

JEL Classifications

L26, M21, O32, Q00

Introduction

Leading small businesses in Takalar Regency experienced rapid growth over the last three years in 2015-2017 in terms of the number of businesses and labor absorption; however this does not contribute significantly to the Gross Regional Domestic Product of the Regency (Hasan, 2019). Based on the previous statement, economic growth in Takalar Regency is still not reach its full potential and still needs further improvement. This condition also illustrates that small businesses have not been able to provide maximum value-added to the achievement of regional economic activities or performance.

One of the core industries of leading commodities in Takalar Regency is a pottery business. The major problem for the pottery business is that the level of technology used is finite so that product creation is still narrow; not only that, but also the high market competition and market control by imported products also make it increasingly difficult to market pottery. From the strength of the pottery business, the availability of raw materials and sufficient labor is available (Hasan, 2019). Pottery business performance is highly dependent on the strategies used in maximizing competitive advantage and minimizing competing limitations (Hunger & Wheelen, 2001; David, 2009; Pearce et al., 2011; Hitt et al. 2011). Many researchers have proven the importance of business strategies to gain competitive advantage and build good performance (Porter, 1985; Barney, 1991; Mintzberg & Lampel, 1999). In addition, Gupta & Lonial (1998); Nandakumar et al. (2011); Pribadi & Kanai (2011) provide the same evidence that the accuracy of strategies influences business performance.

Competitive strategies can be developed specifically through manufacturing strategies, so that they can produce and design goods of better quality and at lower prices (Hayes & Pisano, 1996). Moreover, Skinner (1969) states that the implementation of manufacturing strategies have an impact whether to strengthen or to weaken a company's competitive ability. In addition, Swamidass & Newell (1987) pointed out that manufacturing strategies are seen as an effective force and one of the competitive weapons to achieve company goals. Manufacturing strategies affect competing goals and strategies that enable manufacturing functions to contribute to increasing the competitiveness of companies in the long run (Hayes & Wheelwright, 1988; Schroeder et al., 2011; Volberda et al., 1996 & 2011). According to some researchers, manufacturing strategies represent competitive priorities (Van Dierdonck & Miller, 1980; Hayes & Wheelwright, 1984; Wernerfelt, 1984). These competitive priorities include cost, quality, flexibility and delivery.

The position of manufacturing strategy towards competitive strategies is confirmed by Skinner (1969) that manufacturing strategies are different from competitive strategies, because manufacturing strategies are only one of the functional components, in which the suitability of the relationship (fit) with competitive strategies is needed. Mintzberg (1978) also emphasizes the importance of the alignment of the relationship between competitive strategies and manufacturing strategies. The linking of competitive strategies to manufacturing strategies shows that manufacturing strategies have several characteristics based on competitive strategies; (1) a strong emphasis on cost leadership strategies, so the characteristics of its manufacturing strategy are strong emphasis on reducing and controlling costs, high-level engineering skills, strong emphasis on inventory removal, high-level production standards, high flow of materials and machinery; (2) a strong emphasis on differentiation, the characteristic of its manufacturing strategy is a strong emphasis on premium products and services, high-level product complexity, various final product variations, high-level engineering skills, and high flexibility in scheduling production (Hunger & Wheelen, 2001; Amoako-Gyampah & Boye, 2001).

Several studies have shown that the relationship between manufacturing strategies and competitive strategies is still focused on alignment (Swink & Way, 1995; Amoako-Gyampah & Acquaah, 2008; Amoako-Gyampah, 2003; Haeruddin, 2017) with a top-down approach (Hunger & Wheelen, 2001), thus research now also aims to analyze the support of manufacturing strategies for competitive strategies (Hayes, 1985; Hayes & Pisano, 1996; Brown & Balckmon, 2005; Hill et al., 2014; Schroeder et al., 2011) with bottom-up approach (Slack & Lewis, 2002; Hunger & Wheelen, 2001). Based on the description above, the researchers are interested in focusing on reviewing the integration model of manufacturing strategies and competitive strategies on the impact on business performance (studies on small pottery businesses in Takalar Regency).

Conceptual Framework

Understanding that can be assessed from the results of the development of this research model is the suitability of the relationship between manufacturing strategies and competitive strategies in supporting increased business performance. Manufacturing strategy support for competitive strategies is a key instrument in determining business performance. The conceptual framework of the study can be seen from the following Figure 1.

Figure 1 Conceptual Framework

Manufacturing strategies support competitive strategies (Swink & Way, 1995). The conception from the works of Ward et al. (1996); Hill et al. (2014) and Schroeder et al. (2011) show that the manufacturing strategies may have a significant influence on competitive strategies in improving company performance.

Therefore it can be argued that:

H₁: Manufacturing strategies have a significant and positive effect on competitive strategies.

Furthermore, the conception of the Ward et al. (1996) & Schroeder et al. (2011) show that directly manufacturing strategies affect the performance of the company. Then the results of Ward et al. (1995 & 1996); Gupta & Lonial (1998); Badri et al. (2000); Amoako-Gympah & Acquaah (2008); Sum et al. (2004); Rhee & Mehra (2006); Oltra & Luisa Flor (2010); and Hung et al. (2011) show that the implementation of manufacturing strategies is able to improve company performance. Therefore a hypothesis can be proposed as follow:

H₂: Manufacturing strategies have a significant and positive effect on business performance.

Nandakumar et al. (2011) said that Porter's generic competitive strategy had an effect on company performance. Companies that adopt one of the cost or differentiation leadership strategies will be better than “stuck-in-the-middle” companies that have no dominant strategic orientation. Integrated strategy groups have lower performance compared to cost leadership and differentiation in terms of financial performance measures (Haeruddin & Natsir, 2016; Moses, 2019). Kim et al. (2004) mention that companies pursuing hybrid strategies (combining cost leadership and differentiation) show the highest level of performance. The results of the Syamsurizaldi’s (2011) research on small wood furniture industries show that competitive strategies have a significant and positive effect on the performance of small industries where the application of differentiation strategies is more dominant than the low cost strategy. Furthermore, the results of Suardhika's research (2011) explain that competitive strategies (dominant low cost strategies) have a significant and positive effect on business performance. Pribadi & Kanai (2011) suggest that a positive direct relationship of company strategy and company internal factors towards company performance. High-performing Indonesian SMEs on average opt for differentiation strategies rather than cost leadership. Therefore it can be formulated that:

H₃: Competitive strategies have a significant and positive effect on business performance.

Method

Methodologically, this research used quantitative (positivist) research method. The sample unit is the pottery business with 149 businesses. The unit of analysis is the perception of the pottery business owners. Questionnaire instruments with Likert scale measurements are used as data collection. Respondents were asked to provide answers to closed statements. The respondent is the owner or manager of the pottery business. The method of data analysis in this study used descriptive statistics to describe research variables and inferential statistics to test hypotheses using Generalized Structured Component Analysis (GSCA) analysis.

Results and Discussion

The test results show that the three hypotheses tested all have a significant effect; (1) manufacturing strategies have a significant effect on competitive strategies, (2) manufacturing strategies have a significant effect on business performance and (3) competing strategies have a significant effect on business performance. The results of testing the direct influence between variables in full can be presented in following Table 1.

Investigation of the path of influence of mediation aims to detect the position of intermediate or intervening variables in the model. The mediation variable as a link between the independent variable and the dependent variable can be perfect mediation (partial mediation), partial mediation, and not a mediating variable. The results of the analysis can be shown in Table 2 as follows:

Based on Table 2, it is known that the relationship (c), (d), and (a) are significant in the initial model. Then the relationship coefficient (a) is smaller (down) than the relationship (b), so that the relationship between manufacturing strategies to business performance through competitive strategies is partial mediation. This result means that manufacturing strategies can directly influence business performance and through competitive strategies. The first research findings show that the implementation of the manufacturing strategy is able to improve the application of the pottery business competition strategy. The owner of the earthenware business is quite good at implementing manufacturing strategies with almost the same emphasis on quality strategies, delivery strategies, flexibility strategies and cost strategies, so as to increase the application of competitive strategies with the main emphasis on differentiation strategies versus cost leadership strategies and focus strategies. This finding supports the theory proposed by Swink & Way (1995), Hayes & Pisano (1996) that to obtain the right competitive strategy can be done by setting competitive priorities on the manufacturing strategy. In addition, the findings of this study answer the statement of Stonebraker & Leong (1994) that manufacturing strategies trigger (drive) competitive strategies.

The second findings of the study, the application of the manufacturing strategy were able to improve the performance of the pottery business. The implementation of the manufacturing strategy in several priorities simultaneously with the sand-cone approach starts from quality, delivery, flexibility, and cost, which can improve the performance of pottery business, especially on productivity compared to profitability and the market. The research findings support the results of research by Roth & Miller (1992), Kathuria (2000), Musa (2019), and Wardana & Maulana (2019) which suggest that companies can be competent in several priorities and their position is not mutually excluded from each other, but are an integrated unit and strengthen each other. In addition, these findings support the conception of the Schroeder (1989) and Ward et al. (1996) that directly manufacturing strategies affect the performance of the company. Then these findings broaden the results of previous studies from Ward et al. (1995 & 1996); Gupta & Lonial (1998); Badri et al. (2000); Amoako-Gympah & Acquaah (2008); Sum et al. (2004); Rhee & Mehra (2006); Oltra & Luisa Flor (2010); and Hung et al. (2011).

The third finding, the application of competitive strategies in the pottery business can improve business performance. Competitive strategies applied by pottery business owners who are more emphasized on differentiation strategies are considered appropriate. Based on the value of loading factors, the emphasis is on the focus strategy. The findings of this study are consistent with previous studies from Spanos & Lioukas (2001), Nandakumar et al. (2011), Musa (2017), and Musa et al. (2018) that competitive strategies can significantly improve organizational performance. This finding corroborates the opinion of Hunger & Wheelen (2003); David (2009); Pearce et al. (2011); and Hitt et al. (2011) that business performance is highly dependent on the strategies used in maximizing competitive advantage and minimizing competing limitations if there is conformity with the manufacturing strategy. Thus, the integration of manufacturing strategies with competitive strategies is the key to improving business performance.

Conclusion and Future Research

Generally, it can be stated that the application of a fairly good manufacturing strategy in production activities is able to encourage the implementation of competitive strategies in the pottery business. Priority of quality strategies, delivery strategies, flexibility strategies, and cost strategies provide an important role in implementing manufacturing strategies. Then the application of a fairly good competitive strategy in pottery business activities can improve business performance. The application of focus strategies is seen as the most important as a competitive strategy but has not been prioritized in its implementation. The proprietor of the pottery business assesses the implementation of differentiation strategies as a competitive strategy prioritized in its application. Inaccuracy in applying competitive strategies causes no significant contribution to the achievement of business performance.

There are further implications both theoretical and practical from this article. For the theoretical perspective, this study contributes to the extant literature in the field of strategic management. Next, the practical implication of this study is that the policy makers in related fields need to formulate such regulation in order to increase the business performance by implementing such strategies offered by this paper.

Despite of the contributions presented by this paper, several limitations need to be acknowledged. Firstly, as this study employed a qualitative method then it is difficult to provide a generalization. Further quantitative study needs to be conducted in order to obtain a bigger picture in this particular field. Secondly, future research might need to emphasize on the comparison among family business related strategies and non-family business related strategies.

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