Porter's Generic Strategies and Firm Performance

The methodology consists of a combination of primary and secondary data that have been used to realize this study. The article has been prepared using the analysis of secondary data for literature review (scientific publications and articles from specialized databases, such as Science Direct, Springer Nature, Emerald, and other credible databases), whereas primary data in the form of the quantitative survey conducted in respondent firms that operate their business activities in the republic of Kosovo. For the empirical analysis of the study, the data were gathered by self-administered questionnaires. The participants were randomly chosen. To measure the impact between variables in this study, SPSS version 25 program has been used.

Data collection

From 150 questionnaires that in total were distributed to 150 firm's managers, only 127 valid questionnaires are obtained (so the scale of responses was 84.6%). Even though 127 filled questionnaires were returned, 14 of them lacked in data and cannot be entered in the further analysis; therefore, only 113 questionnaires with full data were analyzed. The questionnaire is designed to take the evaluation of firm's managers regarding the pursuing of Porter's generic strategies in their firms. Responded firms operate in produce sector. The scale used in questionnaire is based on a five-point Likert scale (1 - strongly disagree, 2 - disagree, 3 - neutral, 4 - agree, 5 - strongly agree).

The questionnaire is created based on the analysis of David FR which has shown the factors under which each of the Porter's generic strategies will be effective:

(a) Low-cost strategy can be especially effective under the following conditions (when price competition among rival sellers is especially vigorous; when the products of rival sellers are essentially identical and supplies are readily available from any of several eager sellers; when there are few ways to achieve product differentiation that have value to buyers; when most buyers use the product in the same ways; when buyers incur low costs in switching their purchases from one seller to another; when buyers are large and have significant power to bargain down prices; when industry newcomers use introductory low prices to attract buyers and build a customer base).

(b) Differentiation strategy can be especially effective under the following conditions (when there are many ways to differentiate the product or service and many buyers perceive these differences as having value; when buyer needs and uses are diverse; when few rival firms are following a similar differentiation approach; when technological change is fast paced and competition revolves around rapidly evolving product features).

(c) Focus strategy can be especially attractive under the following conditions (when the target market niche is large, profitable, and growing; when industry leaders do not consider the niche to be crucial to their own success; when industry leaders consider it too costly or difficult to meet the specialized needs of the target market niche while taking care of their mainstream customers; when the industry has many different niches and segments, thereby allowing a focuser to pick a competitively attractive niche suited to its own resources; when few, if any, other rivals are attempting to specialize in the same target segment).

Table 1 shows the factors that are included in the questionnaires that were distributed to the respondent firms, in order to make which dimensions are included within each Porter's generic strategy clear and to define factors that are directly related to pursuing the respective generic strategy. Porter's generic strategies can be particularly effective under the following conditions, and also this table helps to clarify what is meant and what items that variables have included in this study by low-cost strategy, differentiation strategy, focus strategy, and firm performance.

Table 1 Summary of survey items.

Questionnaires as an instrument to gather data

In order to obtain the necessary data for this research, primary sources of information were mainly used, and questionnaires were used as data collection instrument, with the target at managers or responsible of the respondent firms. Questionnaires contained four pages, and their preparation was a combination of the questionnaires that have been used for doctoral dissertations, followed by suggestions of three firms' managers in the produce sector and two university professors; after all the comments and suggestions are incorporated and analyzed, the final version of the questionnaire was written. The questionnaire was sent in June 2017 physically, or by electronic mail if such information was available in the databases used.

Demographic data of respondents firm

Finally, 113 questionnaires were duly completed, broken down by size and age. Table 2 shows the data of respondents concerning demographic data such as: the size, age, and the position of the questionnaire filler in the respondent firm. The questionnaires are filled by owners, directors (CEO), or managers of the respondent firms. The participants are selected randomly. The responded firms are chosen by the firms that operate in the production sector, whereas the size of respondent firms was small and medium-sized firms form 1–250 employees.

Table 2 Demographic characteristic of respondents.

Instrument design

To make the regression analysis, firstly we have to present the link between the independent variables, if the correlation between variables is within the limits (− 0.7 to 0.7); from the general rule of correlation, if the value is outside these limits, variables have strong connection between them, which produces incorrect estimated results. We have multicollinearity when we have a high correlation between independent variables.

The model created and variables

In order to show the relationship between Porter's generic strategies to firm performance, in this section, an econometric model is built based on multivariate regression. This econometric model is not to sue any existing model, but it is used and presented to make our dependent and independent variables that are tested in a mathematical way clearer.

$\hat{Y} = \alpha + b_{1x1} \ldots + \, b_{n} x_{n} + \varepsilon_{i}$

(1)

where $\hat Y$  = dependent variable, α = non-standardized coefficients (constant), $b_1…n =$ non-standardized coefficient of variables, $x_1…n =$ independent variables and εi = standard error.

Dependent variable "firm performance" through using non-standardized weights of regression can be presented as follows:

$\hat{Y}_{a} = \alpha + b_{1} {\text{LCS}}\left( {b_{1} {\text{lcs}}_{1} + \cdots + b_{6} {\text{lcs}}_{6} } \right) + \varepsilon_{i}$

(2)

$\hat{Y}_{b} = \alpha + b_{1} {\text{DS}}\left( {b_{1} {\text{ds}}_{1} + \cdots + b_{7} {\text{ds}}_{7} } \right) + \varepsilon_{i}$

(3)

$\hat{Y}_{c} = \alpha + b_{1} {\text{FS}}\left( {b_{1} {\text{fs}}_{1} + \cdots + b_{3} {\text{fs}}_{3} } \right) + \varepsilon_{i}$

(4)

where $\hat Y a$ is the firm performance which uses the low-cost strategy; $\hat{Y}_{b}$ is the firm performance which uses the differentiation strategy; and $\hat{Y}_{c}$ is the firm performance which uses the focus strategy.

As it can be seen even in the conceptual model shown in Fig. 1, three Porter's generic strategies have an impact on the firm performance, based on the authors who have found on their research studies that a combination of these strategies may bring to the firm the best chance to achieve a higher performance; based on this, the following model ($\hat{Y}_{\text{fp}}$ - firm performance) is created:

$\hat{Y}_{\text{fp}} = \hat{Y}_{a} + \hat{Y}_{b} + \hat{Y}_{c} \to \hat{Y}_{\text{fp}} = \alpha + b_{1} {\text{LCS}} + b_{1} {\text{DS}} + b_{1} {\text{FS}} + \varepsilon_{i}$

(5)

Independent variables: low-cost strategy (LCS), differentiation strategy (DS), and focus strategy (FS).

Dependent variables: firm performance (FP).

With SPSS software, we have tested Eqs. 2, 3, 4, and 5; the results are derived from those econometric tests.