Main Article Content
Purpose of the study: Cost leadership strategy is driven by economies of scale, economies of scope, and operational efficiency is a remedy to a performance where firms are facing high costs. This study sought to investigate the influence of cost leadership strategy on the performance of milk processing firms in Kenya through the lens of competitive advantage as a mediator.
Methodology: The study adopted descriptive and explanatory non-experimental research designs. It was a census of all 29 milk processing firms registered with Kenya Dairy Board as of June 2019. Sampling was done using proportionate stratified random sampling technique and data was collected using self-administered semi-structured questionnaires. The analysis was done using means, standard deviations, and regression.
Main Findings: The findings showed that a cost leadership strategy had a positive and significant effect on the performance of milk processing firms in Kenya with a competitive advantage partially mediating the relationship. The constituent measures of cost leadership strategy namely economies of scale, economies of scope, and operational efficiency accounted for 40.1% of the variation in firm performance.
Applications of this study: This study provides suggestions for firms to manage costs and therefore improve performance. This is by increasing the size of operations, expanding into related business areas, and improving operational processes.
Novelty/originality of this study: The study examines the influence of cost leadership strategy in a new context of milk processing firms in Kenya. It also incorporates a competitive advantage as a significant variable affecting the relationship between costs and performance.
This work is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.
Authors retain the copyright without restrictions for their published content in this journal. IJMIER is SHERPA ROMEO Journal.
- Armstrong, M. & Baron, A. (2004). Strategic HRM: The key to improved business performance. CIPD. London.
- Atikiya, R., Mukulu, E., Kihoro, J., & Waiganjo, E. (2015). Effect of cost leadership strategy on the performance of manufacturing firms in Kenya. Journal of Management, 2(8), 134-143.
- Azad, A. M. S., Raza, A., & Zaidi, S. S. Z. (2018). Empirical relationship between operational efficiency and profitability (Evidence from Pakistan Exploration Sector). Journal of Accounting, Business and Finance Research, 2(1), 7-11. https://doi.org/10.20448/2002.21.7.11
- Barney, J. (1991). Firm resources and sustained competitive advantage. Journal of Management, 17(1), 99-120. https://doi.org/10.1177/014920639101700108
- Barney, J. B. (2001). Is the resource-based “view” a useful perspective for strategic management research? Yes. Academy of Management Review, 26(1), 41-56. https://doi.org/10.2307/259393
- Barney, J. B., & Hesterly, W. S. (2009). Strategic management and competitive advantage. Pearson Education. Upper Saddle River, NJ.
- Baron, R. M., & Kenny, D. A. (1986). The moderator-mediator variable distinction in social psychological research: Conceptual, strategic, and statistical considerations. Journal of Personality and Social Psychology, 51, 1173–1182. https://doi.org/10.1037/0022-35184.108.40.2063
- Bebe, B. O., Rademaker, C. J., Lee, J., Kilelu, C. W., & Tonui, C. (2017). Sustainable growth of the Kenyan dairy sector. Wageningen University and Research. Wageningen.
- Birjandi, H., Jahromi, N. M., Darasi, S. M., & Birjandi, M. (2014). The effect of cost leadership strategy on ROA and future performance of accepted companies in Tehran Stock Exchange. Research Journal of Finance and Accounting, 5(70), 152-158.
- Booyse, N. J. (2018). Development of a school-based performance management framework for self-managing schools in South Africa. [Doctoral thesis, University of South Africa].
- Chege, P. M., & Oloko, M. (2017). Influence of generic strategies on performance of large dairy firms in Kenya. European Journal of Business and Management, 9(30).
- Creswell, J. W., & Creswell, J. D. (2017). Research design: Qualitative, quantitative, and mixed methods approaches. Sage Publications.
- Echwa, M. & Murigi, E.M. (2019). Strategic leadership and performance of domestic airline firms in Kenya.Eastern Africa Journal of Contemporary Research, 1(2), 144-152.
- Elif, G. E. N. Ç., & Şengül, R. (2015). A review on the relationship between strategic management and performance: The role of internal and external contexts. Strategic Public Management Journal, 1(2), 56-71. https://doi.org/10.25069/spmj.290425
- Espirah, J. O., & Murigi, E. M. (2019). Effect of Strategy Execution on Performance of Parliamentary Service Commission of Kenya. Journal of Public Policy & Governance, 3(2), 61-72.
- Field, A. (2009). Discovering Statistics using SPSS. Sage. London, UK.
- Field, A. (2013). Discovering statistics using IBM SPSS statistics. Sage. London, UK.
- Garson, G. D. (2012). Testing statistical assumptions. Statistical Associates Publishing. North Carolina.
- Gorondutse, A. H., & Gawuna, M. S. (2017). Cost leadership strategy and performance of hotels in Nigerian context. Journal of Applied Structural Equation Modeling, 1(1), 1-12. https://doi.org/10.47263/JASEM.1(1)02
- Government of Kenya (2020). Enhanced national response to the Coronavirus (COVID-19) pandemic: Classification of critical and essential services. Public Order Number 1 on the Coronavirus pandemic.
- Growitsch, C., & Wetzel, H. (2009). Testing for economies of scope in European railways: An efficiency analysis. Journal of Transport Economics and Policy (JTEP), 43(1), 1-24.
- Hansen, E., Nybakk, E., & Panwar, R. (2015). Pure versus hybrid competitive strategies in the forest sector: Performance implications. Forest Policy and Economics, 54, 51-57. https://doi.org/10.1016/j.forpol.2015.02.001
- Harreld, J. B., O'Reilly III, C. A., & Tushman, M. L. (2007). Dynamic capabilities at IBM: Driving strategy into action. California Management Review, 49(4), 21-43. https://doi.org/10.2307/41166404
- Hartarska, V., Parmeter, C. F., & Nadolnyak, D. (2011). Economies of scope of lending and mobilizing deposits in microfinance institutions: A semi-parametric analysis. American Journal of Agricultural Economics, 93(2), 389-398. https://doi.org/10.1093/ajae/aaq108
- Hilman, H., & Kaliappen, N. (2014). Do cost leadership strategy and process innovation influence the performance of Malaysia hotel industry? Asian Social Science, 10(10), 134. ttps://doi.org/10.5539/ass.v10n10p134
- Ismail, A. I., Rose, R. C., Uli, J., & Abdullah, H. (2012). The relationship between organizational resources, capabilities, systems and competitive advantage. Asian Academy of Management Journal, 17(1), 151–173.
- Kaplan, R. S. (2009). Conceptual foundations of the balanced scorecard. Handbooks of Management Accounting Research, 3(1)1253-1269. https://doi.org/10.1016/S1751-3243(07)03003-9
- Kaplan, R. S., & Norton, D. P. (1992). The balanced scorecard-measures that drive performance. Harvard Business Review, 70(1), 71-79.
- Kasman, A. (2012). Cost efficiency, scale economies, and technological progress in Turkish banking. Central Bank Review, 2(1), 1-20.
- Kenya Dairy Board (2019). Kenya Dairy Board report. https://www.kdb.go.ke/dairy-data/
- Kiiru, D. M. (2015). Strategic human resource management practices and performance of parastatals in Kenya[Doctoral dissertation, Kenyatta University].
- Kimiti, P. G., & Kilika, J. M. (2018). Organizational resources, industry velocity, attention focus and firm’s performance: A review of literature. International Journal of Business and Management, 13(5), 185. https://doi.org/10.5539/ijbm.v13n5p185
- Krylov, S. (2019). Strategic customer analysis based on balanced scorecard. Ekonomicko-manazerskespektrum, 13(1), 12-25. https://doi.org/10.26552/ems.2019.1.12-25
- Kyengo, J. M., Muathe, S. M. A., & Kinyua, G. M. (2019). Marketing capability and firm performance: An empirical analysis of food processing firms in Nairobi City County, Kenya. The Strategic Journal of Business & Change Management, 6(1), 544-555. ttps://doi.org/10.14445/23939125/IJEMS-V6I5P117
- Lechner, C., & Gudmundsson, S. V. (2014). Entrepreneurial orientation, firm strategy and small firm performance. International Small Business Journal, 32(1), 36-60. https://doi.org/10.1177/0266242612455034
- Majeed, S. (2011). The impact of competitive advantage on organizational performance. European Journal of Business and Management, 3(4), 191-196.
- Martello, M., Watson, J. G., & Fischer, M. J. (2016). Implementing a balanced scorecard in a not-for-profit organization. Journal of Business and Economics Research, 14(3), 61-98. https://doi.org/10.19030/jber.v14i3.9746
- Matejova, L., Placek, M., Krapek, M., Pucek, M., & Ochrana, F. (2014). Economies of scale–empirical evidence from the Czech Republic. Procedia Economics and Finance, 12(1) 403-411. https://doi.org/10.1016/S2212-5671(14)00361-X
- Ministry of Agriculture, Livestock and Fisheries. (2013). Towards a Competitive and Sustainable Dairy Industry for Economic Growth in the 21st Century and Beyond. Sessional Paper No. 5 of 2013 on the National Dairy Development Policy.
- Monsur, S. M. T., & Yoshi, T. (2012). Improvement of firm performance by achieving competitive advantages through vertical integration in the apparel industry of Bangladesh. Asian Economic and Financial Review, 2(6), 687.
- Mosheim, R., & Lovell, C. K. (2009). Scale economies and inefficiency of US dairy farms. American Journal of Agricultural Economics, 91(3), 777-794. https://doi.org/10.1111/j.1467-8276.2009.01269.x
- Muathe, S. M. A. (2010). The Determinants of Adoption of Information and Communication Technology by Small and Medium Enterprises within the Health Sector in Nairobi, Kenya. Unpublished PhD Thesis, Kenyatta University.
- Muathe, S. M. A. (2002). The Application of Information Technology in Enhancing Customer Satisfaction, a Survey of Soft Drink Companies in Nairobi. Unpublished MBA Project, United States International University-Africa.
- Mugenda, O. M., & Mugenda, A. G. (2003). Research methods. Laba Graphics Services Ltd. Nairobi.
- Mutuku, M. K., Muathe, S., & James, R. (2019). Mediating effect of competitive advantage on the relationship between e-commerce capability and performance: Empirical evidence from commercial banks in Kenya. European Journal of Business and Management, 11(17), 48-57. https://doi.org/10.7176/EJBM/11-17-06
- Mwangi, E. W., & Gakobo, J. (2018). Growth strategies and performance of selected milk processing companies in Kenya. International Journal of Contemporary Aspects in Strategic Management, 2(1), 158- 172.
- Niven, P. R. (2011). Balanced scorecard: Step-by-step for government and nonprofit agencies. John Wiley & Sons. https://doi.org/10.1002/9781119197287
- Njoroge, J. G. (2015). Organizational resources and performance of mobile phone companies in Kenya [Doctoral thesis, Kenyatta University].
- Njoroge, J. K., Ongeti, W. J., Kinuu, D., & Kasomi, F. M. (2016). Does external environment influence organizational performance? The case of Kenyan State Corporations. Management and Organizational Studies, 3(3), 41-51. https://doi.org/10.5430/mos.v3n3p41
- Nyauncho, N. M., & Nyamweya, N. I. (2015). Assessment of the effect of cost leadership strategy on the performance of Liquefied Petroleum Gas Companies in Eldoret town, Uasin Gishu County, Kenya. International Journal of Business and Management Invention, 4(4), 1-7.
- Ormanidhi, O., & Stringa, O. (2008). Porter's model of generic competitive strategies. Business Economics, 43(3), 55-64.
- Penrose, E. T. (1959). The theory of the growth of the firm. John Wiley & Sons. New York.
- Razali, N. M., & Wah, Y. B. (2011). Power comparison of Shapiro-Wilk, Kolmogorov-Smirnoff, Lilliefors and Anderson-Darling Tests. Journal of Statistical Modeling and Analytics, 2(1), 21-33.
- Richter, N. F. (2014). Information costs in international business: Analyzing the effects of economies of scale, cultural diversity and decentralization. Management International Review, 54(2), 171-193. https://doi.org/10.1007/s11575-013-0187-y
- Sainaghi, R., Phillips, P., & d’Angella, F. (2019). The balanced scorecard of a new destination product: Implications for lodging and skiing firms. International Journal of Hospitality Management, 76, 216-230. https://doi.org/10.1016/j.ijhm.2018.05.011
- Salavou, H. E., & Halikias, J. (2009). Strategy types of exporting firms: A view on the basis of competitive advantage. European Business Review, 21(2), 144-158. https://doi.org/10.1108/09555340910940141
- Salim, N., Ab Rahman, M. N., & AbdWahab, D. (2019). A systematic literature review of internal capabilities for enhancing eco-innovation performance of manufacturing firms. Journal of Cleaner Production, 209, 1445-1460. https://doi.org/10.1016/j.jclepro.2018.11.105
- Saunders, M., Lewis, P., & Thornhill, A. (2009). Research methods for business. Pearson Education. London.
- Shah, S., Tahir, S. H., Anwar, J., & Ahmad, M. (2016). Does size matter in determining firms’ performance? A comparative analysis of listed companies. City University Research Journal, 6(2), 344-353.
- Sihite, M. (2018). Competitive advantage: Mediator of diversification and performance. In IOP Conference Series: Materials Science and Engineering, 288(1), 12-102. https://doi.org/10.1088/1757-899X/288/1/012102
- Spanos, Y. E., Zaralis, G., & Lioukas, S. (2004). Strategy and industry effects on profitability: Evidence from Greece. Strategic Management Journal, 25(2), 139-165. https://doi.org/10.1002/smj.369
- Sporta, F. O., Ngugi, P. K., Ngumi, P. M., & Nanjala, C. S. (2017). The effect of operational efficiency as a financial distress factor on financial performance on commercial banks in Kenya. The International Journal of Business and Management, 5(7) 102-112.
- Stalk, G., Evans, P., & Shulman, L. E. (1992). Competing on capabilities: The new rules of corporate strategy. Harvard Business Review, 70(2), 57-69.
- Sundin, H., Granlund, M., & Brown, D. A. (2010). Balancing multiple competing objectives with a balanced scorecard. European Accounting Review, 19(2), 203-246. https://doi.org/10.1080/09638180903118736
- Talaja, A., Miocevic, D., Pavicic, J., & Alfirevic, N. (2017). Market orientation, competitive advantage and business performance: Exploring the indirect effects. Društvenaistraživanja, 26(4), 583-604. https://doi.org/10.5559/di.26.4.07
- Teece, D.T., Pisano, G., & Shuen, A. (1997). Dynamic capabilities and strategic management. Strategic Management Journal,18(7), 509-533. https://doi.org/10.1002/(SICI)1097-0266(199708)18:7<509::AID-SMJ882>3.0.CO;2-Z
- Theodosiou, M., Kehagias, J., & Katsikea, E. (2012). Strategic orientations, marketing capabilities and firm performance: An empirical investigation in the context of frontline managers in service organizations. Industrial Marketing Management, 41(7), 1058-1070. https://doi.org/10.1016/j.indmarman.2012.01.001
- Vahid, M. D., Mirzajani, F. S., Izadi, S., Honarmandyar, M. B., & Negahdary, A. A. (2013). Evaluation of the relationship between competitive advantage and export performance (Case study: Iranian firms exporting biotech products). European Journal of Experimental Biology, 3(1), 364-370.
- Wambugu, S., Kirimi, L., & Opiyo, J. (2011). Productivity trends and performance of dairy farming in Kenya. Tegemeo Institute of Agricultural Policy and Development. Egerton University.
- Wang, Y., & Lo, H. P. (2003). Customer-focused performance and the dynamic model for competence building and leveraging: A resource-based view. Journal of Management Development, 22(6), 483-526. https://doi.org/10.1108/02621710310478486
- Wanjiru, A. I., Muathe, S. M., & Kinyua-Njuguna, J. W. (2019). The mediating effect of competitive advantage on the relationship between corporate strategies and performance of manufacturing firms in Nairobi City County, Kenya. Journal of Business and Management (IOSR-JBM), 21(4), 7-15. https://doi.org/10.5430/jms.v10n4p21
- Zahavi, T., & Lavie, D. (2013). Intra‐industry diversification and firm performance. Strategic Management Journal, 34(8), 978-998. https://doi.org/10.1002/smj.2057