INTRODUCTION
The wooden furniture industry in Malaysia has made impressive progress as the
timber sector has been moving towards downstream processing activities with
the launch of the First Industrial Master Plan in 1986 (Farrokhpayam
et al., 2010). Given that the Malaysian furniture industry development
is based on foreign markets, after two decades, Malaysia has emerged as one
of the major suppliers in the world furniture market (Ratnasingam
and Lim, 2008). Despite impressive growth during the last two decades, the
Malaysian wooden furniture industry currently has been facing with cumulative
decline in export growth rate as well as in some other competitiveness indexes
(Ratnasingam, 2002a; Bu, 1999).
To analyze the problem scholars mostly developed a migration strategy approach
to explain the current situation of the industry and referred to overwhelming
OEM manner among the manufacturers as origin of emerging the problem (Shahwahid
et al., 1995; Jahaya, 1997; Bu,
1999; Ratnasingam, 2000; Ratnasingam
and Lim, 2008). At the same time as some of same scholars also referred
to being placed the industry in maturity stage in terms of its approach to the
global market (Ratnasingam, 2002b; Bu,
1999). Both two approaches have highlighted limitation of the industry resources
and capabilities as origin of the situation that implies to follow a resource-based
view from the scholars. while there are many evidences which show intensive
competition is a cumulative factor driving the industry environment (Jahaya,
1997).
While the Resource-Based View (RBV) on firms competitiveness and performance
emphasizes firms internal resources and capabilities (Barney,
2001; Barney et al., 2001), the competitive
strategy view states that a firm's competitiveness and so its performance is
determined by the characteristics of the competition environment and firms
ability to achieve a powerful strategic position through planned effective competitive
strategies namely Cost leadership, Differentiation and Focus (Porter,
1980). In fact, RBV and competitive strategy view are two complementary
views that provide a comprehensive image of an industry in terms of competitiveness
(Ortega and Garcia-Villaverde, 2008; Ortega,
2009). In this manner, to accomplish a structural analysis based on competitive
business level strategy will provide a comprehensive image of the industry structure
and a reliable explanation of the stated situation.
Structural analysis of the industry based on the competitive strategies not
only reveals the underlying strategic trends but also makes feasible to identify
major strategic groups in the industry. In this manner, the strategic group
concept in Porter's typology plays a powerful tool role that facilitates structural
analysis of the industry based on competitive strategies (Linder
and Seidenstricker, 2010).
According to Porter (1980), the strategic group concept
is an investigative tool planned to support in structural analysis. In fact,
it has a mediator role of position between considering the industry as a group
and looking at the firms individually (Alsamydai et al.,
2010). The competitive strategy which will be followed, is derived through
the firms recourses and abilities and so it is conceivable that firms
which pursue parallel strategies, are probable to enjoy similar resources and
capabilities (Linder and Seidenstricker, 2010). This
theory agrees to classify the firms in an industry into specific groups that
are strategic groups. Thus, each group contains similar companies and this similarity
of the firms in the group makes the industrys analysis easier in terms
of number of firms should be observed. Hence, the strategic group theory presents
a more effective approach into the industry analysis. Furthermore, characteristics
of the identified groups can be employed as an analytical device for additional
investigation into the industry.
Even though the earlier studies on strategic groups were driven to examine
the distinct structures from data, the following studies are more driven to
identify the existence and importance of strategic groups (Tang
and Thomas, 1992; Fiegenbaum and Thomas, 1993; Peteraf
and Shanley, 1997). With these developments on the strategic groups
theory, a rising acknowledgment has appeared which scholars should take notice
that it signifies that performance differs across the strategic groups (Dranove
et al., 1998; Wiggins and Ruefli, 1995).
Consequently, the strategic groups analysis provides a wealthy source
of information beyond that of an ordinary classification which sorts the firms
into tactically similar groups (Alvarez, 2004). Ultimately,
the concept of strategic groups has turned into a basic subject in the field
of strategic management and thus strategic marketing due to its capability is
able to clarify the dynamics of competitive strategy (Leask
and Parker, 2006). It is now a key theory to understand the strategic trends
in the competition environment and developing competitive strategy (Menon,
2010).
There are several studies on strategic groups in the wood-based industry based
on competitiveness variables which are related with Porters competitive
business level strategies. OLaughlin and Ellefson
(1981a-c) evaluated the structure of a group of
firms from several U.S. wood-based industry which includes lumber manufacturing,
paper and pulp producing and wood household furniture manufacturing. Cleaves
and OLaughlin (1986a, b) investigated the
business-level strategy among U.S. Plywood producers and identified five strategic
groups among them. At the same time, Rich (1986) examined
the corporate-level proposed competitive strategies among large-size wood-based
firms in the U.S. and classified them using one or a combination of Porters
generic strategies. Bush and Sinclair (1991) examined
the competitive business level strategy in the hardwood lumber industry through
identifying strategic groups among U.S. hardwood lumber manufacturers. Wan
and Bullard (2008, 2009) investigated Porters
generic strategies among the U.S. upholstered, wood household furniture industry
and identified four strategic groups in the industry.
In this study, we employed Portes typology on the competitive strategy and strategic groups concepts to evaluate strategic trends among the industry and classify the Malaysian wooden furniture manufacturers who are involved in exports into the strategic groups. This provides possibility to attain the map of strategic groups which determine major strategic orientations in the industry in the current and future time.
Moreover, we evaluate likely difference of performance among the strategic
groups and perception of each group to the five competitive forces which are
presented by Porter (1980). This provides an evolved approach
and evaluation of the industrys strategic trends and explains both the
current situation and the future changes. In this way, presented hypothesis
in above will be examined.
MATERIAL AND METHODS
The same as Porter (1980) discussed in his description
of strategic groups, we can employ definite dimensions (variables) that are
regarded to be of great importance for the firms capability and success.
These variables or strategic activities can be contemplated as the framework
of the pursued strategy. Given that these variables determine the firms
capability, they are the factors that the firms have to get moving to achieve
the strategy. In other words, firms' actions describe their competitive strategy;
consequently we can suppose the companies' competitive strategy by investigating
their approach toward the strategic dimensions.
Measurements and variables: A four parts questionnaire is developed
as the research instrument for this study. The questionnaire is consisting of:
Competitive forces, Competitive business level strategy, Performance data and
the companys back ground. A total of 23 planned items were adapted from
previous studies (Stalk, 1988; Bush
and Sinclair, 1991; Vesey, 1991; Suri,
1999; Wan and Bullard, 2008, 2009)
for the competitive business level strategy construct. Planned items consist
of 9 items representing Cost leadership, 7 items representing Differentiation
and 7 items representing Focus strategy are presented in Table
1. A seven point Likert scale measuring the strength of attitudes with a
statement was used to measure strategy. To measure strategy, firms were asked
to rate the importance of each item (above-mentioned 23 items) in their firm's
current strategy and in their firm's strategy for the next five years, respectively.
To measure competitive forces the firms were first asked to rate the significance of each competitive force faced by the firms in the industry and then rank the five competitive forces in order of importance. To measure performance, profitability measures were used in this study, these captured the gross profit percentage for the years 2005-2008. To avoid non-response due to the sensitivity of this data, firms were asked to check the interval, not to fill in the exact percentage of gross profit for the four years.
Data collection: The population of this study was the Malaysian manufacturers
of wooden furniture (SITC 821.16 and 821.5) involved in export.
Table 1: |
Strategic activities (tactics) of Porters competitive
strategies |
 |
A total of 272 companies were identified as the population of the study and
so the mail survey included 272 companies (http://www.malaysia-furniture.com/).
In July 2009, a total of 272 questionnaires were mailed to top managers of the
identified companies. Of the total, 23 questionnaires were returned because
of bad mailing addresses and one was not a manufacturer in the industry. A total
of 63 responses which included 60 useable responses and 3 unusable responses
were obtained. The response rate therefore was 24.09%.
Response bias and outliers tests: A non-response bias test was conducted
by testing differences between the means of 24 respondents of the initial mailing,
30 respondents of the second and 9 respondents of the third follow-up mailings
(Armstrong and Overton 1977, Aiken,
1988). Wilks's MANOVA test criterion (Johnson and Wichern,
2007) was employed to test at the 0.05 level of significance for the difference
in the mean scores. Subscales of the three competitive strategies (23 items)
form three groups and each group represented a single multivariate response
for each company. The null hypothesis was that the three groups means for all
23 response variables were equal (H0: μ1 = μ2
= μ3 versus H1: μ1≠μ2≠μ3).
Non-response bias was found to be statistically significant (at α = 0.05).
The results of this multivariate test of non-response bias were p>0.05 and
H0 was accepted. Non-response bias did not exist in this study. Further
statistical data analysis for the survey responses was carried out only after
the test of means was not significant and there was an absence of non-response
bias. In the next step the robust squared distances (RDSQ) technique and the
plot inserted in SAS software that is most useful in analyzing the multivariate
data employed to identify and eliminate outliers (Khattree
and Naike, 1999). After three runs of RDSQ, two outliers were identified
and deleted from further statistical data analysis. Subsequent steps of data
analysis were implemented on 58 respondents data.
Analytical method: A comparison between current and future strategic
activities of an industry reveals the industrys trend in terms of competitive
strategy. In order to present the difference between the current and the next
five years of strategic activities, the mean of the respondents' scores for
current and future strategic activities were computed in the first step. The
rank of strategic activities was ordered from the highest to the lowest (Table
2). After computing and ordering the mean scores responded by each company
for current and future strategic activities, the following study was conducted
to identify the changes between the current and the future strategic activities.
Table 2: |
Mean of current strategic activities |
 |
To compare the mean scores of the current and the next five years of strategic
activities of each company and to obtain the predicted changes in the industry,
Hotelling paired T2 test (Johnson and Wichern,
2007) was conducted first at the 0.05 level of significance, to look for
an overall difference between the mean scores of 3 pairs strategies (overall
mean scores of each strategy's tactics at the current and future), 9 pairs tactics
of Cost Leadership Strategy, 7 pairs tactics of Differentiation Strategy and
7 pairs tactics of Focus Strategy based on the mean scores responded by each
company. A follow-up paired t-test then identified which specific strategic
activities were significantly different for the next five years (Johnson
and Wichern, 2007). In order to identify which particular tactics or strategic
activities were significantly different for the next five years, paired t-test
was conducted (Table 3).
In addition, based on the mean scores of the responses for each tactic (strategic
activity) and the mean scores of each group of tactics that present a distinctive
competitive strategy, the difference and importance of the three competitive
strategies in the current and the next five years were investigated. To determine
if the companies in the industry pursue the distinct competitive strategy an
analysis of variance (ANOVA) was applied to test the null hypothesis:
for the current time and the next five years.
Table 3: |
Changes of strategic activities over the next five years |
 |
Table 4: |
Differences among three competitive strategies (Generic strategies)
in the current and the next five years in particular |
 |
*Difference of means with the same letter is not significant
(at α =0.05) |
Furthermore, to determine which competitive strategy (s) was/were significantly
different from the companies in the industry in the current and the next five
years and to rank the importance of the competitive strategy to the companies,
a Duncan's multiple range test was applied (Table 4).
Identification of strategic groups: With the purpose of identification
of strategic groups among the respondent companies in this research, the factor
analysis technique was employed to attain major factors of strategic activities
and then the cluster analysis based on the obtained factor loading was implemented
to identify the strategic groups (Johnson and Wichern, 2007).
To implement factor analysis the principal component (and the related principle
factor) that is one of most popular methods of determining the relationship
of the factor model employed. The factor analysis was used to examine the 23
strategic variables (strategic activities or tactics) for the current time.
The answers from the principle component method was obtained and rotated and
according to Johnson and Wichern (2007), the variables
with high factor loading (more than 0.4) were then grouped into four factors.
In this process, one of the variable or strategic activities (Improving efficiency
of the production facilities) was omitted because of low factor loading (Table
5).
Based on the calculated factor scores, the second stage involved Cluster analysis
to identify strategic groups. Cluster analysis is a multivariate method used
to classify individuals, based on the characteristics they possess, into uniquely
defined groups so that each individual is very similar to the others in the
group. There are two basic procedures to search for clusters: hierarchical clustering
procedure and nonhierarchical clustering procedure (Johnson
and Wichern, 2007). The nonhierarchical clustering is criticized for having
some major problems du to its decision-based and no tree like structure. Accordingly,
hierarchical clustering methods that are avoided from the problems commonly
are preferred. Ward's method is one of the best hierarchical clustering methods
that has been specified in wide range of earlier researches (Punj
and Stewart, 1983) and is the most theoretically fitting to identify strategic
groups (Bush and Sinclair, 1991). Ward's clustering
method that is named Ward's minimum variance method seeks to minimize the sum
of squared within-cluster distance (Johnson and Wichern, 2007).
In this study, the Ward's method from the hierarchical clustering procedure
was applied to classify the respondent companies into strategic groups. Figure1
presents the diagram of the four strategic groups in the industry and Table
6 presents strategic activities of each group as indicators of their strategic
dimensions.
Perception to the competitive forces in different strategic groups:
In order to assess how the respondent companies in the identified strategic
groups perceived the five competitive forces firstly multivariate analysis of
variance (MANOVA) at the 0.05 level of significance was implemented to evaluate
significant differences among the mean scores of the five competitive forces
between the strategic groups. Furthermore, to determine how the companies in
each strategic group perceives the five competitive forces, a Duncan's multiple
range test was applied to rank the five competitive forces in each strategic
group from the highest to the lowest mean scores and verify significant difference
between the mean scores of competitive forces (Table 7).
|
Fig. 1: |
Four identified strategic groups among the Malaysian wooden
furniture industry in the export segment |
Table 5: |
Four strategic orientations |
 |
The negative loadings are caused by questions that are negatively
oriented to the factor |
Table 6: |
Similar strategic activities and strategic dimension of the
identified groups in the Malaysian wooden furniture industry in the export
segment |
 |
Table 7: |
Differences among the five competitive forces in different
strategic groups |
 |
*Difference of means with the same letter is not significant
(at α =0.05) |
Table 8: |
Differences of performance in different strategic groups
in particular |
 |
*Difference of means with the same letter is not significant
(at α =0.05) |
Differences of performance among the strategic groups: In order to determine if the averages of the firms' performance in different strategic groups are significantly different, a multivariate analysis of variance (MANOVA) to test at the 0.05 level of significance for a difference of means was used for the statistical analysis. Then a Duncan's multiple range test was implemented to determine the rank and differences of each strategic group performance (Table 8).
RESULTS
Changes in strategic activities during next five years: After comparing
the mean scores of the current and the next five years of strategic activities
of each company and obtaining the predicted changes in the industry, the results
demonstrated that there was a significant overall difference between the current
and the next five years of strategic activities (Table 2,
3). These results put forward that a change in the 12 of 23
tactics is probable during the next five years (Table 3; 1
to 12). In other words, manufacturers in the industry are going to increase
their efforts in each of the 12 tactics over the next five years. Using new
marketing methods, developing a recognizable brand name, controlling channels
of distribution, controlling channels of distribution, Investing in new processing
equipments, Manufacturing customized products for individual consumers and focusing
on high price products are top six strategic activities that will not be developed
during the next five years. Developing marketing-oriented activities in comparison
with manufacturing-oriented activities among the companies in the industry during
the next five years is considerable. On the other hand, it is observable that
there were 11 strategic activities (Table 3; rank 13 to 23)
with no change expected in the next five years. Offering a lower price than
competitors for similar quality products, targeting particular customer groups,
improving efficiency of the production facilities, manufacturing products with
mass appeal, obtaining necessary capital (Finance) at low cost and providing
better customer services than competitors are top six activities that will not
be developed during the next five years. Refusal to develop low cost activities
among the companies in the industry during the next five years is considerable.
Competitive strategy orientation at the current and the next five years: The obtained results from evaluating Porter's competitive strategy demonstrated that there is no significant difference between following the Differentiation and the Cost leadership strategies by the companies currently; however, if the companies follow the Focus strategy the companies show a significant difference in comparison with the two other strategies (Table 4). The rank of importance of the competitive strategy in the order from the highest mean of importance to the lowest mean of importance demonstrated that both Differentiation and Cost leadership strategies together had the highest mean of importance and Focus strategy had the lowest mean of importance. These results showed that the companies in the industry follow Cost leadership and Differentiation strategies in the same way, simultaneously. On the other hand, the results of Duncans test on the mean scores of each strategy (related tactics) for the next five years revealed that there are significant differences among all three competitive strategies from the companies. These results showed that Differentiation strategy had the highest mean scores of importance followed by Cost leadership strategy and Focus strategy with a significant difference in the next five years. In addition, a comparison between the mean scores of the three competitive strategies in the current and the future demonstrated that all three strategies would be followed highly during the next five years. In other words, the companies in the industry are going to develop and organize their strategic activities into the significant strategic directions during the next five years.
Strategic groups orientations: The result of the factor analysis (Table 5) showed that most variables assessing Cost leadership strategy and one variable assessing Focus Strategy (Focusing on low price products) were loaded in factor 1 which measured the Cost leadership strategy. Most variables assessing Focus strategy together with some variables of Differentiation and Cost leadership strategies were loaded in factor 2 which measured an overall Focus strategy orientation. Three variables related to three competitive strategies were simultaneously loaded in factor 3 which measured unbiased (diverse) orientation. Three major variables assessing Differentiation strategy were loaded in factor 4 which measured Differentiation strategy orientation. The positive sign of all the factor loadings of these variables indicated that stronger execution of these strategic activities would develop stronger strategic orientations. According to the results, there are four types of strategic orientation among the Malaysian wooden furniture industry in the export segment consist of; Cost leadership strategy orientation, mix strategy with Focus strategy orientation (biased mix strategy), absolute mix strategy orientation (unbiased mix strategy) and Differentiation strategy orientation (Table 6).
In the next step, cluster analysis was accomplished on the 58 responding companies based on the factor analysis results. Accordingly, the companies in this study were clustered into four strategic groups with similar strategic activities. Figure 1 presents the diagram of the four strategic groups in the industry and Table 8 presents obvious and similar strategic activities of each group as indicators of their strategic dimensions. Companies in Group 1 (n = 6) were mostly implementing Cost leadership strategy. Furthermore, one variable from the Focus strategy highlights the focus on low cost products. Companies in Group 2 (n = 16) were mostly implementing Focus strategy within five related variables, Differentiation strategy within three variables and Cost leadership strategy within two variables that altogether showed a mix strategy approach with focus orientation The companies in this group were made up of 28% of the respondent companies. Companies in Group 3 (n = 28) were mostly implementing Differentiation, Cost leadership and Focus strategies simultaneously. Since this group implements three variables that each assessing one of three competitive strategies, it can be considered that the group implemented an unbiased mix strategy. The companies in this group were made up of 48% of the responding companies. Companies in Group 4 were absolutely implementing Differentiation strategy within 3 related variables.
Competitive forces across from strategic groups: The obtained results from evaluating how the respondent companies in the four identified strategic groups perceived the five competitive forces demonstrated the companies in the four strategic groups perceived the five competitive forces as significantly different. Furthermore, the obtained results from Duncan's multiple range test to determine how the companies in each strategic group perceives the five competitive forces demonstrated that the companies who were placed in the Cost leadership strategy group and the Mix strategy group had nearly similar perception of the five competitive forces. According to the results, these companies perceived jointly the intensity of rivalry between existing competitors and the bargaining power of buyers significantly different and higher than other forces. At the same time, the results demonstrated that the companies who were placed in the groups of Mix strategy with Focus orientation and Differentiation strategy group had nearly similar perception of the competitive forces too. These companies perceived the intensity of rivalry between existing competitors significantly different and higher than other forces. The obtained result is presented in Table 7.
Performance across strategic groups: Comparison of the average of the firms' performance in different strategic groups demonstrated that the average performance of the Cost leadership group members is significantly lowest among the four identified strategic groups. In addition, there are relatively differences among average performance of three other strategic groups, even so these difference were not significant. Relatively differences among these three groups showed Differentiation group members enjoy of the highest average performance followed by mix-strategy focus oriented group and unbiased mix-strategy group (Table 8).
DISCUSSION AND MANAGERIAL IMPLICATION
Changes orientation in the strategic activities: The comparison between
the strategic activities subjected to be developed and those which are not going
to be developed, demonstrates that the companies in the industry mainly will
put some effort to develop strategic activities which have been known as the
weakness points of the industry in previous studies (Ratnasingam,
2002a; Bu, 1999). Using new marketing methods, developing
a recognizable brand name, controlling channels of distribution, Investing in
new processing equipment, manufacturing customized products for individual consumers
and focusing on high price products, respectively are top six strategic activities
that the companies decided to develop during the next five years. According
to Porter's five forces model in association with the competitive strategy and
related tactics, these results imply that the companies in the industry have
the proper recognition and rational reflex to the industrys competitive
environment.
Arrangement of competitive strategies at the current and future time: Even so, the results showed that there was a significant difference between the following three competitive strategies used in the current time but this difference is acquired between the Focus strategy and the two other major strategies which are Cost leadership and Differentiation. However, there was no significant difference between following the Cost leadership strategy and Differentiation strategy by the companies. According to Porter's paradigm, Cost leadership and Differentiation are two major kingpins of the competitive strategy view and Focus strategy is a mixture of the tactics rooted from the two major strategies that is implemented in a particular geographic area or a particular customer group. Accordingly, it can be concluded that the industry does not follow a major competitive strategy in the current time or they are implementing both the Cost leadership and Differentiation strategies simultaneously. In other words, these strategies are not mutually exclusive in the industry currently.
In this sense, there are two different ideas that try to justify the above
observable fact. Firstly, Porter (1980) basic paradigm
of competitive strategy, proven by some studies (Leitner
and Stefan, 2007), believed that successful companies should follow only
one of the three competitive strategies directions, specifically Differentiation
or Cost leadership. According to this paradigm, companies who do not implement
a particular competitive strategy will be placed in stuck in the middle position
that is a fragile strategic position and will end up declining the companies'
financial performance.
On the other hand, some researchers believe that due to very intense competitions
in recent years, companies monitor competitors closely for new ideas and rapidly
adopt strategies that appear to be the most efficient (Miles
and Snow, 1978; Hall, 1980; Hambrick,
1983; Johns and Butler, 1988; Parnell,
1997; Engelland and Summey, 1999). This group of
companies mostly refers to skillful-pioneer companies in order to approve their
ideas in competitive strategy in the hope that they will enjoy great growth
rate and performance and it was suggested that lean manufacturing is the best
approach to be used to implement all three competitive strategies simultaneously
to develop competitive advantages in globally contestable furniture markets
(Black and Hunter, 2003).
Based on the comparisons of the two approaches above, the background of the
Malaysian wooden furniture industry demonstrates that the industry has been
developed based on vital resources such as plentiful raw material and low labor
cost, as well as using OEM approach to global market and enjoying governmental
supports over the last two decades (Ratnasingam, 2002a),
thus the companies in this industry were inattentive to the competitive strategy
view and resulted in lacking related skills. Therefore, it seems in the case
of the Malaysian wooden furniture industry in the export segment, it is now
facing a decline in growth rate and performance and according to some previous
studies the industry is in its maturity stage (Ratnasingam,
2002b; Bu, 1999). Porter, (1980)
approach is appropriate to explain the industrys current situation. Thus,
the industry is mostly placed in the stuck in the middle position that implies
the industry does not use a specific strategy rather it wanders among the competitive
business level strategies at the current time.
Based on the comparison of the mean scores of the strategic activities related
to the three competitive strategies in the next five years and in the current
time, it showed that the companies in the industry will put some effort to develop
their competitive strategic orientations distinctively in the next five years.
Thus, this is in line with the third objective. Furthermore, the companies will
follow the three competitive strategies significantly different and at a higher
level in the next five years. The result showed the companies in the industry
are going to implement Differentiation strategy, followed by Cost leadership
strategy and Focus strategy. According to Porter (1980),
competitive strategy in association with the five competitive forces, this result
indicates that the companies have correct perception towards the competitive
forces in the industry environment. Porter, (1980) suggestd,
in case of being faced with the rise in the intensity of rivalry between existing
competitors and in some way the bargaining power of buyers companies should
choose a distinct competitive strategy in general and particularly pursue the
Differentiation strategy to attain a sustainable advantage and better performance.
Strategic groups and strategic trends: The strategic group is an analytical
tool designed to aid in structural analysis of an industry. It is an intermediate
frame of reference between looking at the industry as a whole and considering
each firm separately. Strategic groups often differ in their product characteristics
or marketing approach. These groups could be strong in terms of enjoying distinct
competitive strategic orientation specifically Differentiation and somewhat
Focus strategy (Porter, 1980; Aaker,
1991; Pearce and Robinson, 1994; Kim
and Mauborgne, 1999). Meanwhile, strategic groups could also be fragile
because of the lack in distinct competitive strategy orientation (stuck in the
middle) and Cost leadership orientation is somewhat commonly not known as a
profitable strategy (Porter, 1980; Walters
and Knee, 1989; Mintzberg, 1996).
The four identified strategic groups in the Malaysian wooden furniture industry
in the export segment revealed that a major part of the industry including the
Mix-strategy unbiased group members and Cost leadership group members (in total
58% of the companies in the industry) have been placed in a weak strategic position,
28% of the companies involving Mix-strategy Focus oriented group have been placed
in a fairly stronger position and only 14% of the companies involving Differentiation
group have been placed in a strong strategic position enjoying sustainable competitive
advantages. Consequently, a major of the strategic groups of the industry do
not enjoy the strong strategic orientation. This result strongly supports the
earlier obtained results in this study concerning that the industry is mostly
located in the stuck in the middle position in the current time. This conclusion
is compatible with the presented suggestions in the previous studies that have
investigated the industry structure based on the migration strategy and the
industry life cycle curve (Ratnasingam, 2002b; Bu,
1999).
According to Porter (1980) view, the strategic groups
in an industry can be displayed on a map based on the strategic variables that
form the maps axes. Figure 2 is an estimated map of
strategic groups in the Malaysian wooden furniture industry in the export segment
that provide a preliminary perspective to the industry structure based on the
major dimensions of strategic activities and resources. Strategic group map
is useful to represent the collective market share of the firms in each strategic
group with the size of symbols for subsequent analysis.
Strategic groups and competitive forces: The obtained results showed among the four strategic groups, Differentiation group received the lowest mean scores of the five competitive forces and the Mix-strategy unbiased group received the highest mean scores of the five competitive forces.
These results are obviously in conformity with the Porter
(1980) typology and many other studies on weaknesses and strengths of strategic
groups in terms of generic strategies orientation.
|
Fig. 2: |
The estimated map of strategic groups in the Malaysian wooden
furniture industry in the export segment |
The attraction of Differentiation over Cost leadership as a basis for competitive
advantage is its potential for sustainability. Differentiation strategy is not
unprotected when facing with competitive forces and changes in the competitive
environment and it is more difficult to duplicate by competitors (Kim
and Mauborgne, 1999). When competing with rather homogenous products, where
price is considered as a marketing instrument, differentiation strategy helps
reducing competitive pressure (Aaker, 1991; Pearce
and Robinson, 1994). A sturdy position of Differentiation group and somewhat
Focus oriented group facing with the five competitive forces are assessable
from this view.
On the other hand, as mentioned earlier without a distinct orientation on one
of the three strategic orientations, the only alternative for companies in this
group may be to depend on price competition. The result is likely to be depressed
profitability for all companies in the group. Porter (1980)
termed this situation as stuck in the middle and concluded that
such a strategic position assures low profitability. Walters
and Knee (1989), Bush and Sinclair (1991) and Mintzberg's
study (Mintzberg, 1996) approved this view in their studies
on various industries. From this view, it can be interpreted that the position
of Mix-strategy unbiased group is rather frail.
Strategic groups and firm performance: The evaluation of the financial performance among the four strategic groups demonstrated that there were no significant differences in the average performances of the three strategic groups including Mix-strategy unbiased group, Mix-strategy with Focus orientation group and Differentiation strategy group. A relative difference was observed that showed the Differentiation group had the highest performance average and Mix-strategy unbiased group had the lowest performance average and Mix-strategy with Focus orientation group was placed between them. This can be caused by the interval method of collecting performance data. Nevertheless, there was a significant difference between the performance average the mentioned groups and Cost leadership group. Performance average of Cost leadership group was significantly lower that the other strategic groups.
This result is in oppose to Porter (1980) view that says
the companies with a distinct direction in one of three competitive strategies,
achieve better performance in comparison with the companies without an strategic
direction. Even so, there are many previous studies in agreement with this result
that rejected Porter's view (Miles and Snow, 1978; Hall,
1980; Hambrick, 1983; Johns
and Butler, 1988; Parnell, 1997; Engelland
and Summey, 1999) but it seems that Porter's complementary explanation about
the essential conditions for the achievement of the Cost leadership strategy
is more appropriate in this case. Porter (1980) explains
that achieving a Cost leadership position often requires a high relative market
share or other advantages, such as favorable access to raw materials. He also
mentiond that inflation in costs that narrow the firm's ability to maintain
its margin of profit and facing with powerful cost leadership that enjoys a
major market share, as two key factors that possibly place a Cost leadership
follower in a weak strategic position with lower performance compared to the
industry average performance. In this sense, the cumulative cost of raw material
and labor and facing with China as global cost leadership of wooden furniture
industry with highest market share in global market (Norini,
2003) could be the logical reasons for low performance of Cost leadership
group in comparison with other strategic groups in the Malaysian wooden furniture
industry.
CONCLUSION
The findings from the evaluation of the strategic activities and so competitive strategic direction, identification and investigation of the strategic groups' characteristic and the five competitive forces formation among the strategic groups among the Malaysian wooden furniture industry specifically in the export segment harmoniously approved the presented hypothesis in this research. In other words, findings of this study revealed that the main body of the industry contains two major strategic groups (76% of the companies) which do not pursue one of two basic competitive strategies namely Differentiation and Cost leading ship. This situation put the industry in the fragile position facing both differentiation leader ships like Italy and Cost leaderships like China and will end up the industrys competitiveness decline in long term.
Nevertheless, the findings from investigation of strategic orientation of the major strategic groups during the next five years couple with the five competitive forces formation in these groups, demonstrated that the companies in the industry enjoy of proper intelligent on competitive forces and decide to develop their strategic activities in appropriate with key competitive forces in the competitive environment.
A remarkable finding in the field of strategic groups, contrary to Porter's view, demonstrated that the Cost leadership group as a distinct competitive strategy follower significantly suffers from lower profitability (as index of performance) compared to major strategic groups which do not pursue a distinctive competitive strategy. This result rejects Porter's view higher profitability of the firms that pursue only one strategic direction compared to the firms that pursue all competitive strategies simultaneously.