Islami et al. Futur Bus J 2020, 6(1):3 https://doi.org/10.1186/s43093-020-0009-1 Future Business Journal

RESEARCH Open Access Linking Porter’s generic strategies to frm performance Xhavit Islami1,2, Naim Mustafa2* and Marija Topuzovska Latkovikj3

Abstract In this study, the signifcance of using Porter’s generic strategies in frms that operate in competitive environments is investigated. The aim is to indicate the efects of Porter’s generic strategies (low-cost strategy, diferentiation strategy, and focus strategy) on frm performance. The questionnaires of the study have been prepared, the responses have been obtained, and the econometric model is constructed to measure these relationships. Findings stemmed by data that were taken from 113 frms that operate in the Republic of Kosovo. t test, Pearson’s correlation analysis, and mul- tivariate regression analysis were used to provide testing of hypotheses. Econometric results suggest that pursuing diferentiation strategy provides higher frm performance compared to two other Porter’s generic strategies (low-cost strategy or focus strategy) that have a positive impact as well. Keywords: Porter’s generic strategies, Low-cost strategy, Diferentiation strategy, Focus strategy, Firm performance

Introduction [2]. According to Eurostat [2], about 83% of newborn Increasing the global market, internationalize of frms, enterprises in 2011 have survived in 2012, whereas over nowadays, the uncertainty of frms is increased much the years a gradual decrease is marked only 45% of cre- more, consequently the ambiguity of frms on answering ated enterprises in 2007 which were active in 2012. Te the questions, what do we have to do? and how to do it? is death rate of organizations tends to decrease as they age increased. As well as a lot of other questions that enhance [3, 4]. Newly born organizations sufer a “liability of new- the need to have a strategy, so the importance of strategy ness” [5], in which they have to learn how to survive, and is greater today than ever before. In addition to this, it is must create successful patterns of operations despite hav- valuable answering the question, what is the importance ing limited resources [6]. Slightly older organizations can of having a good strategy? sufer a “liability of adolescence” in which they can sur- Te frst challenge faced by frms that enter into the vive for a time on their initial store of resources, but then market is fnding a way to survive in that market. Statis- their failure rate tends to follow an inverted U-shaped tics and studies that are done have shown approximately pattern as they age [7], whereas frms in the phase of one-third of new European frms do not reach the second decrease try to fnd ways in order to have a longer life cir- year of their existence, whereas 50%–60% of them do not cle in the market. Older organizations can sufer a “liabil- manage to survive till the seventh year [1]. ity of obsolescence” if their operations are highly inertial Currently, frms are losing their energy to fnd meth- and unchanging and become increasingly misaligned ods that ofer them to maintain the existing position in with their environment [8]. the market, as well as to increase the market share and So, to survive, to be more proftable, and to increase proft. About 55% of new entrants fail in the frst 5 years the market share, frms should create strategies. Regard- ing organizational strategies, organizations are referred to as “specialists” if they can survive only within a lim- *Correspondence: naim.mustafa@uni‑gjilan.net 2 Department of Management, Faculty of Economics, University Kadri ited range of resources. However, frms are referred to Zeka in Gjilan, Gjilan, Republic of Kosovo as “generalists” if they can survive using a wide range Full list of author information is available at the end of the article of resources [9]. Empirical research has shown that

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organizations that are more generalist in nature tend to competitive strategies that should be built by frms to last longer than specialized organizations [10]. General- achieve competitive advantages, it lacks on presenting ist organizations tend to have more resources than they strategies by quantitative results, identifying how much need for routine operations, and only operate at full “separately” each of the three generic strategies impacts capacity when responding to unanticipated environmen- on frm performance. As these data are missing, strate- tal demands [11]. Generalist organizations also tend to gists may pursue the wrong strategy without knowing introduce more new products and reach beyond their that in the long-term periods they are destructing their typical market segments than do specialist organizations industry and their business as well. Terefore, to fll this [11]. However, the strength of generalization versus spe- gap in the literature, the objective of this study is to use cialization can be infuenced by the typical duration of the quantitative method to measure the relationship environmental fuctuations [6]. between each of the three Porter’s generic strategies with Researches of this scope have shown that frms during frm performance, in order to enrich the existing litera- their life cycle can be faced with strong that ture and to bring something new and clearer strategy for leads them to failure. Tis was the reason that aroused on pursuing Porter’s generic strategies. our curiosity to research the relationship between Por- Te research aim is to analyze the possible infuence by ter’s generic strategies and frm performance, as a way implementating Porter’s generic strategies: (a) low-cost that can decrease the failure scale of frms. Te fndings strategy; (b) diferentiation strategy; and (c) focus strat- of this paper enrich the strategic literature by empirical egy in the frm performance of the production sector, and evidence and ofer an opportunity for business strategists also to fnd out which of these three strategies is more to choose the path that will provide for their organiza- signifcant with increasing frm performance. tions to survive, to increase the proft, and to increase the market share. On these days, frms are coping with a very competi- Literature review tive, turbulent, and unstable market that stems from Since the early 1980’s, Michael Porter’s strategic prompt technological development. Terefore, the man- typology has been one of the most widely accepted ager’s focus is on creating a by methods of discussing, categorizing, and selecting creating a new way of strategic development, which is company strategies [19]. appropriate for them and enables a successful adaption to that technological and industrial changes. A major We focused on Porter’s generic strategies’ framework stream of strategy research examines the relationship for a couple of reasons. Firstly, Porter’s framework of between strategy type and frm performance, which was generic strategies is inherently tied to frm performance. done by [12–17]. Tese strategy types are sometimes Secondly, Porter’s framework overlaps with other typolo- called generic strategies [18]. gies. Porter’s diferentiation strategy resembles [20] pros- Te rest of this paper is organized as follows: Te sec- pector strategy, and Porter’s strategy of cost is ond section includes literature review regarding Por- similar to Miles and Snow’s defender [21, 22] cost leader- ter’s generic strategies that present the characteristics ship strategies. Porter’s focus strategy is very much like of low-cost strategy, diferentiation strategy, and focus Miller and Friesen’s [23] niche innovator strategy (cited strategy, as well as their way of relation with frm per- by [24]). formance. In the third section, the research hypotheses To make clearer the term “strategy” are presented sev- are presented, whereas the fourth section deals with the eral strategy defnitions. Schendel and Hofer [25], defned methodology used to test the raised hypotheses. In the strategy as: “strategy provides directional cues to the ffth section, the model used is presented and analyzed. organization that permit it to achieve its objectives, while In the sixth section, hypotheses are tested and discus- responding to the opportunities and threats in its envi- sion for results is included, and this study ends with some ronment.” “Strategy is analyzing the present situation contributive conclusions. and changing it if necessary. Incorporated in this is fnd- ing out what one’s resources are or what they should be” Research objective [26]. Cannon [27], “Strategies are the directional action After Porter’s generic strategies are read and ana- decisions which are required competitively to achieve the lyzed, strategists fall into confusion that which strat- company’s purpose.” Strategies are potential actions that egy should be pursued or which strategy to implement require top management decisions and large amounts in their organization to provide better performance of the frm’s resources [28]. In addition, strategies afect for their frms. Even though Porter has analyzed care- organization’s long-term prosperity, typically for at least fully the industry environment, competitive forces, and 5 years, and thus are future oriented. Strategies have Islami et al. Futur Bus J 2020, 6(1):3 Page 3 of 15

multifunctional or multidivisional consequences and available on the market. Type two is a best-value strategy require consideration of both the external and internal that ofers products or services to a wide range of cus- factors facing the frm. tomers at the best price value available on the market. Porter’s model and generic strategies are considered Te reason that why organizations continue to pursue as an important part of management theories, through low-cost strategy is that it helps frms to increase their which it is explained the frm behavior toward competi- performance; for the sake of low cost, the company is tors in a certain industry. Te term “generic strategy” capable of selling the product and service with a lower refers to a wide area of usage and opportunity to create price and still providing the same level of proftability competing advantage despite the industry, the sort, and with the competitors [36], and protecting the organiza- size of organization [29]. Strategy is an essential part of tion from powerful suppliers by ensuring necessary fex- any efective business . By using an efective com- ibility inside the area of proft to cope with an increment petitive strategy, a company fnds its industry niche and in input prices [33], it serves as a barrier for entrants in learns about its customers [18]. According to Porter, conditions of the economic scale, control, and cutting the strategies allow organizations to gain competitive advan- expenses [33, 36], as well as through experience of curve tage from three diferent bases: cost leadership, diferen- [37]. tiation, and focus [18, 30]. Porter calls these bases generic Strategists should be careful about decision making to strategies [28]. pursue the low-cost strategy, and it does not provide a permanent competitive advantage for companies that use Meaning of low‑cost strategy relationship with frm low cost or best value. Low-cost strategy must achieve performance their competitive advantage in the way that is very dif- Low-cost strategy emphasizes producing standard- fcult to copy or match by competitors. If the low-cost ized products at a very low per-unit cost for consumers method can be found relatively easy by rivals or is inex- who are price sensitive [28]. According to Grifn [31], pensive to imitate that strategy, the low-cost advantage low-cost strategy is a strategy in which an organization will not last long enough to yield a valuable edge in the attempts to gain a competitive advantage by reducing its marketplace [28], which claims that in a manner that low- costs below the costs of competing frms. cost strategy is successful in improving organization per- It is worth mentioning that according to Tompson formance, it must fulfll two ways to accomplish this: (a) et al. [32], a low-cost provider’s foremost strategic objec- perform activities more efciently than rivals tive is meaningfully lower costs than rivals—but not nec- and control the factors that drive the costs of value chain essarily the absolutely lowest possible cost. In striving for activities and (b) revamp the frm’s overall value chain to a cost advantage over rivals, company managers must eliminate or bypass some cost-producing activities. But, incorporate features and services that buyers consider both of these steps could be imitated by competitors, and essential. therefore, strategists should analyze in detail the com- Low-cost strategy puts importance in an increment in petitors and their ability to respond with the same strat- organizational performance. It includes the process by egy, before they decide to apply the low-cost strategy. By which the company is capable of producing or distribut- pursuing a low-cost strategy, frms must be careful to use ing goods and services with a lower cost than the com- no such aggressive price cut which leads their profts to petitors [33]. Porter defnes a low-cost strategy as trading be low or not existing. Using this strategy constantly is of standard products 30 combined with aggressive prices mindful of technological breakthrough cost-saving or any [18]. Pursuing low-cost strategy should be considered not other value chain progress by rivals that could erode or as a product/service ofered which is an inferior prod- destroy the frm’s competitive advantage. uct, but as a product/service that has same comparative A successful low-cost strategy usually infltrates the qualities with competitors and an appropriate price [33]. entire frm, as evidenced by high efciency, low overhead, It is worth mentioning that Porter [30] has shown the limited perks, intolerance of waste, intensive screening of relationship between low-cost strategy and frm perfor- budget requests, wide spans of control, rewards linked to mance, and he found that low-cost strategy is a success- cost containment, and broad employee participation in ful way to realize stable competing advantage through cost control eforts [34]. reducing and controlling the cost and as a result raising organization performance. Can the diferentiation strategy serve as a tool Numerous authors explained that low-cost strategy can for increasing frm performance? Yes be defned by two alternative types (e.g., see [32, 34, 35]). Diferentiation strategy is one of Porter’s key business Type one is a low-cost strategy that ofers products or strategies [38]. Diferentiation refers to the develop- services to a wide range of customers at the lowest price ment of a unique product or service [28, 30, 33, 36, Islami et al. Futur Bus J 2020, 6(1):3 Page 4 of 15

39–44]. Diferentiation strategy is a strategy in which an activities; seek out high-quality inputs; and emphasize organization seeks to distinguish itself from competitors human resource management activities that improve the through the quality of its products or services [31]. skills, expertise, and knowledge of company personnel. According to Porter [30], if product or service is unique, this strategy provides high customer loyalty. Is it possible that frms implement diferentiation strategy Terefore, if customers perceive the product or service and low‑cost strategy simultaneously? as unique, they are loyal to the company and willing to Given the benefcial impact of both strategies on the frm pay the higher price for its products [40, 45]. According competitive position, it logically will raise the question: to Hesterley and Barney [46], diferentiation of prod- Can a frm simultaneously implement both strategies? uct or service is an expression of individual and group After all, if each strategy separately can improve frm per- creativity inside frms, which means that the risk of formance, wouldn’t be better for the frm to implement imitating diferentiation is depended on frms’ capacity both of them? Te answers to these questions are not to be creative in fnding methods that make the prod- compatible between authors. uct unique. And for this strategy, Porter 30 showed the According to Hesterly and Barney [48], the answer is No: relationship with frm performance and the advantages Tese strategies cannot be implemented simultaneously. that frms earn from pursuing diferentiation strategy In their view, the organizational requirements of these referring to realizing higher incomes compared with strategies are essentially contradictory. Low-cost strategy competitors because of mark trust, quality, and percep- requires simple reporting relationships, whereas product tion that clients have for the company product. diferentiation requires cross-divisional/cross-functional It is worth mentioning that even diferentiation strat- linkages. According to them, frms that do not make this egy does not defend the frm strategy from imitation by choice of strategies (medium price, medium market share) competitors forever, and David [34] wrote that diferen- or that attempt to implement both strategies will fail. tiation does not guarantee competitive advantage, espe- Tese frms are said to be “stuck in the middle.” cially if standard products sufciently meet customer In the Porter strategy trade-of paradigm, opposed stra- needs or if rapid imitation by competitors is possible. tegic dimensions could not be pursued at the same time According to him, successful diferentiation can mean without creating some sort of inefciency in the frm’s greater product fexibility, greater compatibility, lower value chain [18, 43]. Tis is because strategic positioning, costs, improved service, less maintenance, greater con- such as diferentiation and low cost, involves contradic- venience, or more features. tory activities and resource allocation that are mutually A successful diferentiation strategy allows a frm to exclusive. Another approach of strategy which is called charge a higher price for its product and to gain cus- “blue ocean strategy” argues the opposite; even more, tomer loyalty because consumers may become strongly they go beyond that frms can apply all these activities attached to the diferentiation features [28] declares simultaneously: elimination, reduction, growing, and that to the extent that diferentiating attributes are creating. tough for rivals to copy, a diferentiation strategy will Strategic authors [49] have analyzed the “blue ocean be especially efective, but the sources of uniqueness strategy” by conducted a study of business launches in must be time-consuming, cost-prohibitive, and sim- 108 companies. Tey found that 86% of these launches ply too burdensome for rivals to match. Terefore, the were line extensions, i.e., incremental improvements frm should pay attention when it decides to pursue to existing industry oferings within red oceans, while a the diferentiation strategy. In their research, Guisado- mere 14% were aimed at creating new markets or blue González et al. [47] have found that implementation of oceans. While line extensions in red oceans did account a diferentiation strategy in the manufacturing innova- for 62% of the total revenues, they only delivered 39% of tive companies infuences positively the probability of the total profts. By contrast, the 14% invested in creating establishing agreements of R&D cooperation and inno- blue oceans delivered 38% of total revenues and a star- vation with other organizations. tling 61% of total profts. Given that business launches Te ways that managers can enhance diferentiation included the total investments made for creating red and based on value drivers according to Tompson et al. [32] blue oceans (regardless of their subsequent revenue and include the following: create product features and perfor- proft consequences, including failures), the performance mance attributes that appeal to a wide range of buyers; benefts of creating blue oceans are evident. In this expla- improve customer service or add extra services; invest in nation, blue ocean strategy looks a bit like diferentia- production-related R&D activities; strive for innovation tion strategy, because it creates something diferent from and technological advances; pursue continuous quality existing products. So, what is the relationship between improvement; increase marketing and brand-building blue ocean strategy and diferentiation strategy? Islami et al. Futur Bus J 2020, 6(1):3 Page 5 of 15

Te explanation of the relationship between the blue depends on an industry segment that is of sufcient size, ocean strategy and diferentiation strategy is given in the has good growth potential, and is not crucial to the suc- following: Blue oceans are defned by untapped market cess of other major competitors. Strategies such as mar- space, demand creation, and the opportunity for highly ket penetration and market development ofer substantial proftable growth. Although some blue oceans are cre- focusing advantages. ated well beyond existing industry boundaries, most are According to authors [32, 34, 35], focus strategy has created from within red oceans by expanding existing two alternative types. Type one is a low-cost focus strat- industry boundaries. In blue oceans, competition is irrel- egy that ofers products or services to a small range evant because the rules of the are waiting to be set. (niche group) of customers at the lowest price available Te term “blue ocean” is an analogy to describe the wider on the market. Type two is a best-value focus strategy potential of market space that is vast, deep, and not yet that ofers products or services to a small range of cus- explored. It will always be important to navigate success- tomers at the best price value available on the market. fully in the red ocean by outcompeting rivals [49]. So the Sometimes called “focused diferentiation,” the best-value main direction which is promoted by blue ocean strategy focus strategy aims to ofer a niche group of custom- is to create something (product or service) diferent from ers the products or services that meet their tastes and the products or services that exist in the market. requirements better than rivals’ products do. Another question is regarding the relationship between Midsize and large frms can efectively pursue focus- blue ocean strategy and low-cost strategy. Is blue ocean based strategies only in conjunction with diferentiation strategy basically a low-cost strategy, i.e., is it about or cost leadership-based strategies. All frms in essence capturing the low end of a market with a low enough follow a diferentiated strategy. Because only one frm price? (www.blueo​ceans​trate​gy.com). Te answer is No; can diferentiate itself with the lowest cost, the remaining blue ocean strategy pursues diferentiation and low cost frms in the industry must fnd other ways to diferentiate simultaneously by reconstructing market boundaries. their products. Focus strategies are most efective when A blue ocean strategic move captures the mass of target consumers have distinctive preferences or requirements buyers not through low-cost pricing, but through strate- and when rival frms are not attempting to specialize in gic pricing. Te key here is not to pursue pricing against the same target segment [28]. the competition within an industry but to pursue pric- ing against substitutes and alternatives that are currently The conceptual model derived from the relationship capturing the non-customers of your industry. between Porter’s generic strategies and frm performance Te literature for strategies provides numerous theories, Focus strategy in the function of improving frm research methodologies, and ideas on the strategy–per- performance formance relationship [12]. Researchers have found the Focus strategy is proposed from Porter 30 as a generic link between generic strategies and performance less- strategy, which has shown that if the frm implements ened by situational variables including a focus on manu- the focus strategy in an appropriate way, its performance facturing and proftability [51]. To investigate the generic will be increased. Focus strategy is a strategy in which an strategies and performance link, many researchers began organization concentrates on a specifc regional market, utilizing approaches found to be generalizable across product line, or group of buyers [31]. industries, specifcally those proposed by Porter [18, 30]. Trough focus strategy, the company has as a purpose Several researchers have treated this relationship and to serve a segment in the close market [30, 39–43, 50]. later on were supported by other researchers (see [52– Pursuing this strategy provides frm the integration of 58]). Some of the research supported singular generic wide range activities that are connected with diferen- strategies also produces results which sow seeds of doubt tiation and low cost in a particular segment from which about the relationship between singular generic strategy company generates higher profts, and Pulaj [33] states and superior performance, and it appears some busi- that frms advantage during implementation of focus nesses succeed only when they combine diferentiation strategy are higher. One of the advantages is frm’s capac- and low-cost generic strategies [55]. Allen and Helms ity to act with high speed in order to adjust the changes [12] seek further research on the relationship between in the environment, taste, and preferences of consum- strategy and frm performance, including potential mod- ers. Focusing on a specifc market with diferent needs erators of this relationship, which is clearly needed in from the others, it creates an advantage compared to order to advance strategic theory. rivals based on the knowledge and experience in felds Terefore starting from the existing literature for strat- related to competencies such as low cost or diferentia- egy, it will be presented the relation between Porter’s tion. According to David [28], a successful focus strategy generic strategy and frm performance. Figure 1 shows Islami et al. Futur Bus J 2020, 6(1):3 Page 6 of 15

The process of how Porter’s generic strategies impact on firm performance

Low-cost strategy

Differentiation strategy Firm performance

Focus strategy

Fig. 1 Conceptual model. Source: By author the conceptual model of this study. Authors were agree- 1. Are the respondent frms operating in the competi- ing on the importance of generic strategies, but research- tive industry? Tis question stresses the environment ers have not determined yet, which of the three generic where the frms were competing, as it is well known strategy frameworks helps more the frm to increase its that Porter’s generic strategies are suitable only for performance. It seems that some combination of prac- frms that operate in the competitive industry. If the tices is more efective, but propositions on strategic respondent frms were not operating on a competi- practices have remained largely untested and there is a tive industry, the results of this study would not be recognized need for empirical works in this area. Tis signifcant for strategic literature. exploratory research begins to fll this gap in the litera- 2. Which of the three Porter’s generic strategies has ture and fnd out which of the three generic strategies is more impact on frm performance? Answering this better to pursue by frms. question provides for strategists in business and aca- Figure 1 presents the research conceptual model, which demic circles the fnal result that is the core goal of fguratively summarizes hypotheses that will be explored this study. By testing the above hypotheses, the data below. provide whether Porter’s generic strategies have a positive or negative relationship with frm perfor- Hypotheses and research questions mance. After results are taken from hypotheses test Based on the abovementioned literature in this section, by the multivariate regression, the answer to this the hypotheses of the study are presented. By testing the question is found out. hypotheses of this study, the gap in the existing strate- gic literature that deals with the relationship of linking Porter’s generic strategies with frm performance will be Methodological approach flled. In order to provide the empirical evidence for the Te methodology consists of a combination of primary most important of Porter’s generic strategy, which ena- and secondary data that have been used to realize this bles the frm to increase the competitive environment, study. Te article has been prepared using the analysis the following hypotheses have to be tested: of secondary data for literature review (scientifc pub- lications and articles from specialized databases, such Low-cost strategy has a positive relationship H1 as Science Direct, Springer Nature, Emerald, and other with frm performance that operates in a competitive credible databases), whereas primary data in the form of environment. the quantitative survey conducted in respondent frms that operate their business activities in the republic of H2 Diferentiation strategy has a positive relationship Kosovo. For the empirical analysis of the study, the data with frm performance that operates in a competitive were gathered by self-administered questionnaires. Te environment. participants were randomly chosen. To measure the impact between variables in this study, SPSS version 25 H3 Focus strategy has a positive relationship with frm program has been used. performance that operates in a competitive environment.

Data collection By testing these hypotheses, the data will be taken for each Porter’s strategy separately, but to clarify more, the From 150 questionnaires that in total were distributed aim of this paper was to create two research questions. to 150 frm’s managers, only 127 valid questionnaires Tese questions show that the study has accomplished are obtained (so the scale of responses was 84.6%). Even the required rules to get the fnal results: though 127 flled questionnaires were returned, 14 of Islami et al. Futur Bus J 2020, 6(1):3 Page 7 of 15

them lacked in data and cannot be entered in the further each Porter’s generic strategy clear and to defne fac- analysis; therefore, only 113 questionnaires with full data tors that are directly related to pursuing the respective were analyzed. Te questionnaire is designed to take the generic strategy. Porter’s generic strategies can be par- evaluation of frm’s managers regarding the pursuing of ticularly efective under the following conditions, and Porter’s generic strategies in their frms. Responded frms also this table helps to clarify what is meant and what operate in produce sector. Te scale used in question- items that variables have included in this study by low- naire is based on a fve-point Likert scale (1—strongly cost strategy, diferentiation strategy, focus strategy, and disagree, 2—disagree, 3—neutral, 4—agree, 5—strongly frm performance. agree). Te questionnaire is created based on the analysis of Questionnaires as an instrument to gather data [28] which has shown the factors under which each of the In order to obtain the necessary data for this research, Porter’s generic strategies will be efective: primary sources of information were mainly used, and questionnaires were used as data collection instru- (a) Low-cost strategy can be especially efective under ment, with the target at managers or responsible of the the following conditions (when price competition respondent frms. Questionnaires contained four pages, among rival sellers is especially vigorous; when the and their preparation was a combination of the question- products of rival sellers are essentially identical and naires that have been used for doctoral dissertations from supplies are readily available from any of several [33, 59, 60], followed by suggestions of three frms’ man- eager sellers; when there are few ways to achieve agers in the produce sector and two university professors; product diferentiation that have value to buyers; after all the comments and suggestions are incorporated when most buyers use the product in the same and analyzed, the fnal version of the questionnaire was ways; when buyers incur low costs in switching written. Te questionnaire was sent in June 2017 physi- their purchases from one seller to another; when cally, or by electronic mail if such information was avail- buyers are large and have signifcant power to bar- able in the databases used. gain down prices; when industry newcomers use introductory low prices to attract buyers and build Demographic data of respondents frm a customer base). Finally, 113 questionnaires were duly completed, broken (b) Diferentiation strategy can be especially efective down by size and age. Table 2 shows the data of respond- under the following conditions (when there are ents concerning demographic data such as: the size, many ways to diferentiate the product or service age, and the position of the questionnaire fller in the and many buyers perceive these diferences as hav- respondent frm. Te questionnaires are flled by owners, ing value; when buyer needs and uses are diverse; directors (CEO), or managers of the respondent frms. when few rival frms are following a similar difer- Te participants are selected randomly. Te responded entiation approach; when technological change is frms are chosen by the frms that operate in the pro- fast paced and competition revolves around rapidly duction sector, whereas the size of respondent frms was evolving product features). small and medium-sized frms form 1–2501 employees. (c) Focus strategy can be especially attractive under the following conditions (when the target market Instrument design niche is large, proftable, and growing; when indus- To make the regression analysis, frstly we have to present try leaders do not consider the niche to be crucial the link between the independent variables, if the corre- to their own success; when industry leaders con- lation between variables is within the limits (− 0.7 to 0.7); sider it too costly or difcult to meet the specialized from the general rule of correlation, if the value is outside needs of the target market niche while taking care these limits, variables have strong connection between of their mainstream customers; when the industry them, which produces incorrect estimated results. We has many diferent niches and segments, thereby have multicollinearity when we have a high correlation allowing a focuser to pick a competitively attractive between independent variables [62–66] cited by [67]. 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 ques- 1 We have used the defnition of small and medium enterprises (SME) based tionnaires that were distributed to the respondent frms, on European Union standards where < 10 employees are micro-, < 50 employ- in order to make which dimensions are included within ees are small-, and < 250 employees are medium-sized enterprise [61]. Islami et al. Futur Bus J 2020, 6(1):3 Page 8 of 15

Table 1 Summary of survey items. Source: Authors Table 2 Demographic characteristic of respondents. Source: Authors Low-cost strategy LCS Insurance of raw material, negotiation about lowering prices Demographic variable Count (percentage) 1 n 113 with suppliers = LCS2 Standardization of products/services Firm size LCS3 Efciency in products/services Up to 49 employees 63 (55.7%) LCS4 Maximum capacity utilization of the frm From 49 to 250 employees 50 (44.3%) LCS5 Ofering the products/services with a lower price than the Firm age competitors 1–10 years 51 (45.1%) LCS Control of the frm’s overall expenses 6 11–20 years 36 (31.8%) Diferentiation strategy 21–30 years 9 (7.9%) DS Developing new products/services 1 31–40 years 11 (9.8%) DS The degree of releasing of new products/services in the market 2 Above 40 years 6 (5.4%) DS Increasing the intensity of advertising and marketing 3 Position of the respondents in the respondent frms DS Diferentiation through shortening the project time 4 Owner 12 (10.6%) DS Development and training of selling power 5 Director (CEO) 48 (42.5%) DS Creation of a good name and image 6 Manager 53 (46.9%) DS7 Ofering unique products Focus strategy

FS1 Aiming a specifc part of the market Yˆ = α + b (b +···+b ) + εi FS2 Ofering products for that segment of the market that pays b 1DS 1ds1 7ds7 (3) high prices FS3 Ofering of specifc products to adjust to a particular number Yˆ b b b of clients c = α + 1FS( 1fs1 +···+ 3fs3) + εi (4) Firm performance Yˆ where a is the frm performance which uses the low-cost FP1 Increasing proft Yˆ strategy; b is the frm performance which uses the difer- FP2 Increasing incomes Yˆ entiation strategy; and c is the frm performance which FP3 Increasing parts of the market uses the focus strategy. FP4 Returning of investment (ROI) As it can be seen even in the conceptual model shown FP5 Lowering costs in Fig. 1, three Porter’s generic strategies have an impact FP6 Improving quality on the frm performance, based on the authors [40, 55, 58, 68–73], who have found on their research studies that a combination of these strategies may bring to the frm The model created and variables the best chance to achieve a higher performance; based Yˆ In order to show the relationship between Porter’s on this, the following model ( fp—frm performance) is generic strategies to frm performance, in this section, an created: econometric model is built based on multivariate regres- Yˆ = Yˆa + Yˆb + Yˆc → Yˆ = α + b LCS + b DS + b FS + εi sion. Tis econometric model is not to sue any existing fp fp 1 1 1 model, but it is used and presented to make our depend- (5) ent and independent variables that are tested in a math- Independent variables: low-cost strategy (LCS), difer- ematical way clearer. entiation strategy (DS), and focus strategy (FS). Dependent variables: frm performance (FP). Yˆ = α + b x ...+ bnxn + εi 1 1 (1) With SPSS software, we have tested Eqs. 2, 3, 4, and 5; Yˆ the results are derived from those econometric tests. where = dependent variable, α = non-standardized coefcients (constant), b1…n = non-standardized coef- fcient of variables, x1…n = independent variables and Empirical results εi = standard error. Porter’s generic strategies are applicable in the competi- Dependent variable “frm performance” through using tive environment; we have tested the competing envi- non-standardized weights of regression can be presented ronment of respondent frms. Table 3 shows the data as follows: for the competitive environment in which respondent Yˆ b b b frms operate. In the questions presented in Table 3, the a = α + 1LCS( 1lcs1 +···+ 6lcs6) + εi (2) participants had fve scales to present their competing Islami et al. Futur Bus J 2020, 6(1):3 Page 9 of 15

Table 3 Firm’s responses for competing environment. Source: Authors Study of environment variables Minimum Maximum Mean Std. deviation

A small number of frms are dominant in the market 1 5 2.63 1.775 Products/services are similar in the market 1 5 4.29 1.151 A large number of frms ofer similar products/services 1 5 4.26 1.144 In our industry, there is a decrease in requirement 1 5 3.48 1.617 Obstacles to get out of market are high 1 5 3.03 1.367 environment from 1—not at all competing environment this study the values varied from 0.734 (focus strategy) to to 5—extremely competing environment. From this 0.894 (frm performance), showing that the instruments table, it can be seen that the highest assessment by the are sufciently reliable. Variables LCS­ 2, ­LCS4, ­FS1, and respondent frms has taken the ascertainment “products/ ­FS3 are moved from further analyses because they have services are similar in the market” which is evaluated on reliability value lower than (< 0.7). In order to see which average with 4.39 from 5 that was the maximal evalua- factors are included within each Porter’s generic strategy, tion, while the lower evaluation has taken ascertainment which enables us to test the hypotheses of this research “a small number of frms are dominant in the market” paper, Cronbach’s alpha test is performed for reliability on average with 2.63 by 5 that was the maximal evalu- (Table 5). ation. By these results, the answer is found for the frst Te frst-order inter-items for reliability test by Cron- research question: Are the respondent frms operating in bach’s alpha found that items ­LCS2, ­LCS3, ­FS2, and ­FS3 the competitive industry? So, the environment where the are not related enough to put in their box of the question respondent frms operate is a competitive environment, to test their strategy and are removed for further analysis. and these results provide the needed conditions to go Te diferentiation strategy is represented by seven items, further with hypotheses testing that derives by the third and all of them consisted of the level above 0.7 of the reli- section of this study (Table 4). ability test, Cronbach’s alpha 0.779. Te dependent vari- able “frm performance” is made by six questions in the Descriptive statistics frst- and second-order inter-items; the reliability results Descriptive data are minimum, maximum, mean, and have shown a Cronbach alpha value of 0.894, which is a standard deviation, for all independent variables and high level of reliability. Based on the reliability test (Cron- dependent variable that are part of this research. bach’s alpha), all values were above 0.7. A “Cronbach’s alpha” test was used to evaluate the reli- In order to analyze the data and to test the hypoth- ability of the factors as suggested by Nunnally [74] cited eses, the correlation and regression analyses were by [75]. Cronbach’s alpha can be considered an adequate applied. To complete the regression and correlation index of the inter-item consistency reliability of inde- analysis, IMB SPSS statistical software was used. In pendent and dependent variables [76] cited by [75]. addition to correlation and regression analyses, descrip- Nunnally [74] suggests that constructs should have reli- tive statistics were presented to clarify more the ftness ability values 0.7 or greater. Table 5 shows the relation- of used variables. Whereas empirical fndings presented ship between the items that are measured, deliberately below show the results achieved by correlation matric to see which factors have the highest relationship, and and regression analyse. that can be represented by a single variable. Te reli- abilities for each of the four constructs were adequate Correlation analysis since the Cronbach’s alpha values for each were signif- Table 6 shows the Pearson correlation analysis for the cantly greater than the prescribed 0.7 threshold. So, in independent variables that are taken as a prediction in fnding (defning) dependent variable “frm perfor- Table 4 Descriptive statistics of the study variables mance,” in order to measure the scale of the relationship (n 113). Source: Authors between independent variables in this testing. It is pre- = Study variables Minimum Maximum Mean Std. deviation sented the connection between low-cost strategy, difer- entiation strategy, and focus strategy. According to the LCS 2 5 3.91 0.713 results presented in the table, it is shown that the relation DS 3 5 4.29 0.776 in between independent variable is inside the allowed FS 1 5 3.75 0.770 borders (+, − 0.7) [62]. Te results showed no potential FP 2 5 3.81 0.991 multicollinearity among variables. Te results shown in Islami et al. Futur Bus J 2020, 6(1):3 Page 10 of 15

Table 5 Statistical highlights—Cronbach’s alpha test for reliability Source: Authors Low-cost strategy Diferentiation strategy Focus strategy Firm performance

Cronbach’s alpha test for reliability 0.760 0.779 0.734 0.894 Remaining items with loading values > 0.7

LCS1 0.767 DS1 0.750 FS1 0.754 PS1 0.866

LSC2 0.564x DS2 0.750 FS2 0.621x PS2 0.871

LCS3 0.715 DS3 0.700 FS3 0.619x PS3 0.880

LCS4 0.597x DS4 0.771 PS4 0.873

LCS5 0.767 DS5 0.793 PS5 0.875

LCS6 0.712 DS6 0.765 PS6 0.889

DS7 0.712

Table 6 Correlation matrix (n 113). Source: Authors 1% change in application of the differentiation strat- = Variables Correlations LCS DS FS FP egy the firm performance will change by 43.9%. As well, independent variable “FS” is positively related LCS Pearson’s correlation 1 to dependent variable “FP” by predicting it for 31.5% Sig. (two-tailed) (b = 0.315 and p = 0.028), which means that for each DS Pearson’s correlation 0.233* 1 1% change in application of the focus strategy the firm Sig. (two-tailed) 0.074 performance will change by 31.5%. If it is analyzed FS Pearson’s correlation 0.527*** 0.119 1 closely, Table 7 shows that independent variable “DS” Sig. (two-tailed) 0.000 0.355 has a higher impact in increasing firm performance FP Pearson’s correlation 0.499*** 0.337*** 0.433*** 1 compared to two other generic strategies. With these Sig. (two-tailed) 0.000 0.007 0.000 results, we answered the second research question: *Correlation is signifcant at the 0.10 level (two-tailed) Which of the three Porter’s generic strategies has more ***Correlation is signifcant at the 0.01 level (two-tailed) impact on firm performance? Porter [18] stressed that if firms want to have a strat- egy in order to achieve a competitive advantage they Table 6 allow us to continue with further analysis to test should pursue three strategies, that he called generic the regression analysis. strategies. In accordance with his result and based on the empirical results of this study, Eq. 6 is presented, Regression analysis which shows the participation of each strategy in firm performance. ˆ Yfp = α + b1LCS + b1DS + b1FS + εi In order to measure the impact of independent vari- → Yˆ = 0.448 + 0.312 ∗ LCS ables in dependent variable “firm performance,” mul- fp + ∗ + ∗ + εi tivariate regression analysis has been used. Regression 0.439 DS 0.315 FS (6) analysis is presented in Table 7. According to regres- sion analysis, independent variables that enter in the As shown in Eq. 6, all the variables that were tested analysis explain 63.2% of dependent variable “firm per- have a positive impact on firm performance; Porter formance.” F value is 9.976 (sig. 0.000), which means [18, 30] has shown that all of his three generic strat- that the model is statistically important with the sig- egies have a positive impact on firm performance, if those are used in the right way. Equation 6 shows nificance level α = 0.05. Independent variable “LCS” is positively connected with dependent variable “FP” by something more and tells that by pursuing low-cost strategy in conditions that all the other variables predicting it for 31.2% (b = 0.312 and p = 0.031), which means that for each 1% change in pursuing of the low- remain unchanged firm performance will be increased cost strategy the firm performance will change by for 31.2%; by pursuing differentiation strategy in con- 31.2%. Independent variable “DS” is positively related ditions that all the other variables remain unchanged to dependent variable “FP” by predicting it for 43.9% firm performance will be increased for 43.9%; and by pursuing focus strategy in conditions that all the other (b = 0.439 and p = 0.019), which means that for each Islami et al. Futur Bus J 2020, 6(1):3 Page 11 of 15

Table 7 Regression analysis of dependent variable “Firm performance,” n 113. Source: Authors = Model R2 ΔR2 β b S.E F t p

0.671 0.632 9.976 (Constant) 0.448 0.800 0.560 0.038 LCS 0.245 0.312 0.141 2.207 0.031 DS 0.312 0.439 0.182 2.410 0.019 FS 0.246 0.315 0.163 1.934 0.028 b, non-standardized coefcients; S.E, standard error of variables; β, standardized coefcients; t, t-statistic; p, signifcant level; R2, R square; ΔR2, adjusted R square

variables remain unchanged firm performance will be advantage in the industry. According to Kume [36], frms increased for 31.5%. In this econometric model, exactly that follow low-cost strategy have two advantages: (a) the impact of each generic strategy in firm perfor- for the sake of low cost, frm is capable of selling prod- mance is presented, and these results have a positive ucts and services with lower prices than its rivalries and impact in managers’ decision making and in enriching of having the same level of proft with them; (b) if fght- the strategic literature related on using Porter’s generic ing for the competition is raised, the cost leader is more strategies and their impact on firm performance. resistant compared to other competitors. See the “beta” column of Table 7. If we increase using Te second hypothesis ­(H2) has declared that diferenti- low-cost strategy by 1 standard deviation, the firm ation strategy has a positive relationship with frm perfor- performance will increase by 0.245 standard devia- mance. Te frm that pursues the diferentiation strategy tions, if we increase using differentiation strategy by 1 will increase its performance. Te empirical results pro- standard deviation, the firm performance will increase vided that diferentiation strategy explains 43.9% of frm by 0.312, and if we increase using focus strategy by 1 performance; based on this result, H­ 2 is accepted (H­ 2↑). standard deviation, the firm performance will increase For each 1% increase of applying diferentiation strategy, by 0.246. the frm performance will be raised by 43.9% if the other variables remain unchanged. Even frms that apply dif- Discussion of the fndings and their implications ferentiation strategy sufer from the imitations action by In this section, the discussion will go deeper inside Por- the competitors in that industry. Diferentiation strategy ter’s generic strategies and their relationship with frm enables frms to sell their product/service with a higher performance. Also, alternatives to pursue each of the price than its competitors in the industry because frms three generic strategies and their implication on the that pursue diferentiation strategy meet the needs of practical implementation are presented. consummators in the way that competitors cannot ful- Te frst hypothesis (H­ 1) has declared that low-cost fll; matching of these unique needs derives as a result of strategy has a positive relationship with frm perfor- ofering unique products or services by the frm. Tese mance. Te frm that pursues the low-cost strategy will frms frstly investigate the market with the aim to iden- increase its performance. Empirical results provided tify the consumers’ needs and then ofer the unique ser- that low-cost strategy explains 31.2% of frm perfor- vice/product in accordance with consumers’ need. mance; based on this result, H­ 1 is accepted (H­ 1↑). Te Te distinction between pursuing low-cost strategy results of Table 7 show that for each 1% of applying an and diferentiation strategy is that: Low-cost strategy is increase in low-cost strategy in frm performance will be related to economizing operations processes of produc- raised with 31.2% if other variables remain unchanged. tions that make possible to produce products/services Tis result shows that if an organization is implement- with low-cost, whereas diferentiation strategy is related ing the low-cost strategy will have higher performance to uniqueness of operational processes on the value chain than its competitors that operate in the same industry that makes possible to produce products/services in a but are not pursuing the low-cost strategy. Te competi- unique way which increases the value of its products, and tive advantage achieved by the low-cost strategy may be as a result of this, the price of its products is increased as vague when competitors in the industry start to imitate well. that strategy. Low-cost strategy enables the frm to sell Te third hypothesis (H­ 3) has declared that focus its product/service with a lower price compared to its strategy has a positive relation with frm performance. competitors because of lower costs of producing prod- Te frm that pursues the focus strategy will increase its ucts/service; as a result of this, they win a competitive performance. Te empirical results provided that focus Islami et al. Futur Bus J 2020, 6(1):3 Page 12 of 15

H : 0.499*** (0.000) Low-cost strategy 1 b (0.312) 0.233* (0.074) 0.527*** H : 0.337*** (0.007) Differentiation strategy 2 Firm performance (0.000) b (0.439) 0.119 (0.355) *** Focus strategy H3: 0.433 (0.000) b (0.315) Notes: Standard deviations in parentheses.*p<0.10; ***p<0.01; b=un-standardized coefficients. Fig. 2 Results from this study for the process of Porter’s generic strategies’ impact to frm performance. Notes: Standard deviations in parentheses.*p < 0.10; ***p < 0.01; b non-standardized coefcients. Source: Authors = strategy explains 31.5% of frm performance; based on will apply the same strategy (lowering the price for their this result, H­ 3 is accepted (H­ 3↑). For each 1% increase products/services). Low-cost strategy in a long-term of applying focus strategy, the frm performance will be period does not bring the new consumers in the indus- raised by 31.5% if the other variables remain unchanged. try but only bring displacement of consumers from one Pursuing the focus strategy enables the frm to sell its frm to another. As a result of this movement, zero-sum product/service in a “niche” market that is not occu- efect is created (one more customer for a frm equals pied by competitors. Focus strategy gives a competitive to one less customer for other frms that operate in the advantage until the moment when its competitors show same industry, consequently, occur customer move- interest in this part of the market. When this niche mar- ment between frms without bringing new clients in the ket becomes an attractive part for competitors, the frm industry). will be faced with higher competition. In this situation, On the contrary, a frm that pursues diferentiation competitive frms will be forced to pursue low-cost strat- strategy in the short- and long-term period enables to egy or diferentiation strategy in order to survive and to increase the frm performance. In the short-term period, increase proftability or market share. this method brings proft to the frm as a result of the To sum up, the application of Porter’s generic strategies competitive advantage that is provided by a unique prod- brought an increment to respondent frms’ performance. uct/service with higher quality than competitors. In the ­H1, ­H2, and ­H3 are accepted/supported. Firms that apply long-term by pursuing the diferentiation strategy pro- low-cost strategy, diferentiation strategy, and focus strat- vides an added value of all industry. As a consequence egy have better performance compared to frms that do of strategy imitation by competitors provides a higher not apply Porter’s generic strategies. In this study, as quality of product/service that leads the industry on a a result of the empirical analysis, which of the generic higher level of quality. By analyzing very clearly, how strategies has a higher impact on frm performance? can works this strategy and what advantages it will bring in be identifed. Results from respondent frms have shown the industry? It can be explained as: the main objective that the frms that apply the diferentiation strategy have of the organization managers and strategists is increas- a higher performance compared to frms that pursue the ing the frm performance over time, but the existing of low-cost strategy or focus strategy. Te visual appearance numerous competitors makes it not easy to achieve it. of linking Porter’s generic strategies to the frm perfor- In the competitive market, the way that frm managers mance that is generated from the empirical analysis can follow to achieve the objective is product/service difer- be summarized as shown in Fig. 2. entiation, by trying to create something unique in order Terefore, the results of this study suggest frms fol- to be attractive for consumers. Tis uniqueness can be low more the diferentiation strategy compared to two done by increasing the existing product/service values other generic strategies. Bearing in mind the reason that are present in the market or bringing new and better that, if frms apply the low-cost strategy this is going to products/services in the market. Both of these ways set a be the frst step toward the destruction of their industry higher value of products/services in the industry. in the long-term period. If one frm lowers the price for To further simplify these implications, two levels of its product/service, then the competitors in that industry economic priorities, winning priorities and qualifying Islami et al. Futur Bus J 2020, 6(1):3 Page 13 of 15

priorities, can be used. Te winning priorities mean the pursuing the diferentiation strategy has a higher impact added value of products that help frms to achieve a com- on increasing frm performance compared to two other petitive advantage in the market, whereas qualifying pri- Porter’s generic strategies. orities mean the standard value of products/services that Applying Porter’s generic strategies provides the frms are operating in the market. When new frms try to enter to reach successfully the essential purposes of every frm in the market, they should provide products/services at that are to survive, to be proftable, and to increase the the same level of value with existing products/services market share. Tis study makes a signifcant contribution in the market. In accordance with these two economic to the scientifc and academic value, regarding the impact concepts, when frms pursue the diferentiation strat- of Porter’s generic strategies to frm performance in Kos- egy, the winning priorities are created which make them ovo, in the region, and beyond. dominate in the competitive market, but in the long-time period, the competitors in order to compete with that Abbreviation industry should copy existing frms’ strategy to create SPSS: Statistical Package for Social Sciences. products/services in the same value. As a result, in the Acknowledgements long-time period, the winning priorities become quali- Not applicable. fying priorities; this is the reason why we stress that the value of the industry will be increased by using the difer- Declarations This statement is to certify that all authors have seen and approved the manu- entiation strategy. Firms that pursue diferentiation strat- script being submitted. We warrant that the article is the authors’ original egy create unique products or services that distinct those work. We warrant that the article has not received prior publication and is not by competitors, as a result of accomplishing unique needs under consideration for publication elsewhere. On behalf of all co-authors, the corresponding author shall bear full responsibility for the submission. This and demands of consummators. Our fndings suggested research has not been submitted for publication nor has it been published in that in an economy that competition is getting stronger, whole or in part elsewhere. where markets are opening, competition is rising, the Authors’ contributions frms have to earn their success and in order to earn their All authors read and approved the fnal manuscript. success, they need to have a strategy, and this strategy should be the diferentiation strategy. Firms must focus Funding The study has no funding source from any institution or donor agency. on bringing a unique product/service, to accomplish unique consummators needs. Availability of data and materials The data used in this manuscript are primary data, and questionnaires were Conclusion used as a tool for gathering that data. The distributed questionnaires have contained the anonymity statement on it ensuring respondents that their per- Te aim of this study was to fnd out the impact of Por- sonal data will not be published anywhere: “Anonymity: Only the investigator ter’s generic strategies in increasing frm performance, will have access to the physics responses. No one will be able to determine, in any written report or article, whether you have participated in this study or through analyzing each of the generic strategies: low-cost not, the data will be published as generalized.” So, we cannot distribute their strategy, diferentiation strategy, and focus strategy. To information, but we are allowed to use and to present it only in the general- fnd the relationship between variables of the study, three ized form of results. Also, SPSS is used as a tool for data analyses; as a result, those data are coded by numbers. As such, the data are in the responsibility of independent variables “LCS,” “DS,” and “FS,” as well as the corresponding author. one dependent variable “FP,” were created. Tree propo- Ethics approval and consent to participate sitions have been made in the form of hypotheses: ­H1, Not applicable. ­H2, and ­H3. By the correlation analysis, the relationship between independent variables was moderated, whereas Consent for publication in multivariate regression analysis enough information We attest to the fact that all authors have contributed signifcantly to the work, have read the manuscript, attest to the validity and legitimacy of the has been found for the impact of Porter’s generic strate- data and their interpretation, and agree for publication this manuscript in the gies on frm performance. Pearson’s correlation and mul- Future Business Journal. tivariate regression results have supported three research Competing interests hypotheses raised in this research. The authors confrm that there are no known conficts of interest associated Also, two research questions were answered in this with this publication and there has been no signifcant fnancial support for study. Te frst question was answered before the this work that could have infuenced its outcome. hypotheses verifcations and the respondent frms were Author details operating in a competitive industry, whereas after the 1 Department of Organizational Science and Management (Management), hypotheses were tested, the second research question was Faculty of Economics, Saints Cyril and Methodius University in Skopje, Skopje, Republic of North Macedonia. 2 Department of Management, Faculty of Eco- answered. Te fndings of this research showed that three nomics, University Kadri Zeka in Gjilan, Gjilan, Republic of Kosovo. 3 Centre of Porter’s generic strategies are important to increase for Management and Human Resource Development, Institute of Sociological, frm performance. Also, empirical fndings indicated that Islami et al. Futur Bus J 2020, 6(1):3 Page 14 of 15

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