ABSTRACT
The study sought to evaluate the relationship between Porter’s generic competitive strategies and organizational performance among agro food processing firms in Nakuru and Kericho Counties in Kenya. Specific objectives were;- to determine the relationship between utilization of focus strategy and organizational performance, to determine the relationship between the utilization of cost leadership strategy and organizational performance , to determine the relationship between differentiation strategy and organizational performance and to determine the combined effect of Porter's generic competitive strategies focus, differentiation and cost leadership on organizational performance. The target population was agro food processing firms in Nakuru and Kericho Counties. A cross sectional survey was conducted involving 53 large and medium agro- food processing firms. Primary data was collected using structured questionnaires administered to a management staff in each of the agro food-processing firm. Data was analyzed with help of the Statistical Package for Social Sciences (SPSS) version 17.0. Both descriptive statistics and correlation analysis were used to analyze data. The findings from the study indicated that focus and differentiation strategies significantly influenced organizational performance in terms of growth in market share; cost leadership strategy did not significantly influence organizational performance among agro- food processing firms in the study area. Cost leadership, differentiation and focus strategies were found not to significantly influence organisational performance individually, however the combined Porter's generic competitive strategies were found to significantly influence organisational performance.Consequently, this study made the following recommendations: the managements in the agro-food processing should strengthen utilization of all the Porter’s competitive strategies in order to realize meaningful performance among agro- food processing firms; increase the level of research and development in production; diversify their products as well as undertake regular product re-launch or re-design and promotion and effectively implement the Porter’s competitive strategies in order to realize increased levels of organizational performance especially in employee productivity, revenue per employee and profitability margins.
CHAPTER ONE
INTRODUCTION
Background of the Study
Competitiveness is at the core of success or failure of firms. It determines the appropriateness of a firm’s activities that can contribute to its performance such as innovations, cohesive culture or good strategy implementation. Competitive strategy aims to establish a profitable and sustainable position against forces that determine industry competition (Porter, 1998). These forces include; the threat of new entrants, rivalry between existing firms, threat of powerful buyers and suppliers, threat of substitute products and other forces acting in the wider economy. Strategy is concerned with how firms ought to act in the market place, whereas competition is concerned with the processes that discriminate between the fortunes of different firms; the process by which performance become relative.
Porter’s generic strategy matrix highlights cost leadership, differentiation and focus as the three basic strategy choices for firms. A venture can choose how it wants to compete, based on a match between its type of competitive advantage sought and the target market pursued, as the key determinants of choice (Akan, Allen, Helms, & Spralls, 2006). Competitive advantage grows out of the value a firm is able to create for its buyers that exceeds the firm’s cost of its creation. Competitive advantage is useful to an organization when it is sustainable and sustainable competitive advantage leads to above average performance in an industry. Different firms adopt different approaches towards attaining sustainable competitive advantage, a firm is said to have a sustainable competitive advantage when it is implementing a value creating strategy not simultaneously being implemented by any current or potential competitors and when those other firms are unable to duplicate the benefits of this strategy (Barney, 1991).
According to the Porter’s five forces framework, firm performance is a function of industry and firm effects (Grant, 1991). Industry structure affects the sustainability of firm performance, whereas positioning reflects the firm’s ability to establish competitive advantage over its rivals (Porter, 1998). There are three major generic competitive strategies a firm may adopt these are; cost-leadership, differentiation and focus (Porter, 1998). Firms that follow the cost-leadership strategies concentrate on operating at lower costs than competitors. On the other hand, firms pursuing a differentiation strategy distinguish themselves by certain attributes of their products and services. They select one or more differentiation attributes that buyers perceive as important and direct their activities at providing those attributes. Differentiation attributes vary in different markets and industries (Spanos & Lioukas, 2001). Firms that choose focus strategy concentrate on serving specific defined segments; this can either be broad or narrow focus.
Competitive Strategies
A competitive strategy aims to establish a profitable and sustainable position against the forces that determine industry competition. In cost leadership a firm strives to be the least cost producer, the sources of cost advantage are varied and depend on the structure of the industry. They may include the pursuit of economies of scale, proprietary technology and preferential access to raw materials. If a firm can achieve and sustain overall cost leadership it is said to be an above-average performer in its industry provided it can command prices at or near the industry average (Porter, 1998). At equivalent or lower prices than its rivals, a cost leader's low-cost position translates into higher returns. In cases where the product is not perceived as comparable or acceptable by buyers, a cost leader will be forced to discount prices below competitors' to gain sales. This may nullify the benefits of its favorable cost position.
In a differentiation strategy, a firm seeks to be unique in its industry along some dimensions that are widely valued by buyers. It selects one or more attributes that many buyers in an industry perceive as important and uniquely positions itself to meet those needs (Porter, 1998). A firm that can achieve and sustain differentiation will be an above- average performer in its industry, if its price premium exceeds the extra costs incurred in being unique. A differentiator, therefore, must always seek ways of differentiation that lead to a price premium greater than the cost of differentiating.
Focus strategy rests on the choice of a narrow competitive scope within an industry. The focuser selects a segment or a group of segments in the industry and tailors its strategy to serving them to the exclusion of others (Pearce & Robinson, 2007). By optimizing its strategy for the target segments, the focuser seeks to achieve a competitive advantage in its target segments even though it does not possess overall competitive advantage. The focus strategy has two variants, which are cost focus and differentiation focus. In cost focus, a firm seeks a cost advantage in its target segment, while in differentiation focus a firm seeks differentiation in its target segment (Porter, 2008). Cost focus exploits differences in cost behavior in some segments, while differentiation focus exploits the special needs of buyers in certain segments.
Performance in Agro food Processing industries
Agriculture is an activity, which is heavily affected by climatic conditions. The impacts of changes in climate on agricultural activities have been shown to be significant for low input farming systems in developing countries in Africa (McGuigan, Reynolds & Wiedmer, 2002). The performance of the agricultural sector is determined by crop and animal production, which depends on a large number of factors varying from climatic conditions to government policy. These factors directly affect agro food processing because agricultural activities serve to provide the sources of raw materials for agro food processing firms.
Agro food processing industries have made significant contribution to Kenyan economy with their contribution to the gross domestic product (GDP) growing at 10%, 11.8%, 12.8%, 13.6% and 13.3%, between 1993 and 1998, however, the contribution of agriculture to GDP stagnated at 24% while that of manufacturing declined from 13.8% to 13.3%. In spite of the decline in the agricultural sector’s contribution to GDP, it remains one of the most important sectors driving economic growth in Kenya (Republic of Kenya. Ministry of State for Planning National Development and Vision 2030, 2008).
Agriculture is among the major contributors to the economic pillar of the government’s strategic development plan dumped vision 2030. It accounts for 24% of the Kenyan GDP closely followed by tourism at 12.5%. Agriculture therefore presents a big opportunity for the Kenyan economy to attain the sustained growth of 10% required to achieve vision 2030.
Processed foods account for 80% of global food sales, packaged food corresponds to only one third or less of total food expenditure in developing countries (World Bank, 2008). Food processing in developing countries is an important component of the manufacturing sector, growing as a percentage of GDP as income increases, although with a proportionate declining share in total manufacturing (Humphrey & Memedovic, 2006). Data on food processing in developing countries is however incomplete and the importance of the informal sector can vary from 20% to 70% of the food industry depending on product category and country. Ten per cent of processed food products are traded globally and trade growth has stalled since the middle ‘90s. The share of processed foods as a proportion of total agricultural exports has increased sharply for all developing countries. On the other hand, since the ‘90s most less developed countries (LDCs) have become net food importers, with the majority of these imports corresponding to processed foods (World Bank, 2008).
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Item Type: Kenyan Topic | Size: 56 pages | Chapters: 1-5
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