The relationships among selected business environment factors and manufacturing strategy: insights from an emerging economy

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1 Available online at Omega 31 (2003) The relationships among selected business environment factors and manufacturing strategy: insights from an emerging economy Kwasi Amoako-Gyampah Department of Information Systems and Operations Management, Bryan School of Business and Economics, University of North Carolina-Greensboro, Greensboro, NC 27402, USA Received 24 October 2001; accepted 28 March 2003 Abstract Manufacturing strategy represents the way a rm plans to deploy its manufacturing resources and to use its manufacturing capability to achieve its goals. Recent research has pointed out the important role of the business environment on the manufacturing strategy choices by organizations. However, most of the research has been conned to well-developed economies. This paper extends the research on business environment and manufacturing strategy by presenting results from an emerging economy. Using data collected from manufacturing rms in Ghana we demonstrate that in an emerging economy concerns about the competitive hostility is the factor with the strongest inuence on manufacturing strategy choice.? 2003 Elsevier Science Ltd. All rights reserved. Keywords: Manufacturing strategy; Business environment; Emerging economy; Hierarchical regression 1. Introduction Conceptual work in manufacturing strategy has clearly established the link between manufacturing strategy and business performance [1,2]. A limited number of empirical studies have also been done to support the existence of the link between business environmental factors and manufacturing strategy content [3 7]. However as noted by Ward and Duray [8], environmental issues have received limited consideration in empirical studies on manufacturing strategy. One of the few studies on manufacturing strategy that includes consideration of environmental issues is the Ward et al. study of 1995 [4]. In that study Ward and his colleagues examined the impact of environmental conditions on the operations strategy of rms in Singapore. A limited number of studies have focused on the development of manufacturing strategy among rms in developing countries [3]. This Tel.: ; fax: address: kwasi amoako@uncg.edu (K. Amoako-Gyampah). study will contribute to the existing literature by looking at manufacturing strategy in an emerging economy. The strategies that businesses adopt are inuenced by the economic environment (interest rates, ination, growth of the economy, competition, labor prices, etc.) in which they operate. Whereas the above statement might not draw any arguments within the context of highly developed economies, it is not known the extent to which that might be true in underdeveloped economies. This is particularly true with regard to the development of manufacturing strategies. Thus, this study seeks to understand the extent to which perceptions about the nature of the business environment inuence the selection of specic manufacturing strategies by rms in an emerging economy. The study is conned to manufacturing rms in Ghana. However, as will be argued later, the results obtained here could provide valuable insights for rms in other countries that face similar economic situations. The purpose of this study is to examine how various business environmental factors inuence the choice of competitive manufacturing strategies when a company is facing harsh economic conditions. The paper will identify the /03/$ - see front matter? 2003 Elsevier Science Ltd. All rights reserved. doi: /s (03)

2 288 K. Amoako-Gyampah / Omega 31 (2003) specic relationships among the business environmental factors of costs, labor availability, competitive hostility, and dynamism and the manufacturing strategies of low cost, quality, exibility and dependability. Several contributions are evident from this study. First, the study allows us to understand how models developed to explain the inuence of business environment on manufacturing strategy content in mostly developed or rapidly developing economies might (or might not) be applicable in underdeveloped economies. There have been some inconclusive empirical results on the transferability of organizational theories from developed countries to developing countries [9]. Therefore, if it can be demonstrated that the models using data from more advanced economies are applicable in other environments, then the generalizability of those models can be extended and while at the same time broadening the external validity of the theories and constructs underlying those models. The second contribution is an understanding of how dierent perceptions about the business environment lead to the adoption of dierent manufacturing strategies. The third contribution is to determine if the factors rm size and degree of foreign ownership help explain the inuence that business environment has on the selection of manufacturing strategy. 2. Previous studies and rationale There has been a growing interest among operations management researchers in manufacturing strategy research since the seminal work of Skinner in While several studies have highlighted the importance of manufacturing strategy with regard to the overall business strategy and performance of a rm (e.g. [1,5,10 12]), there have been very few studies that have looked at the role that the business environment has on manufacturing strategy choices. Although there were some earlier studies such as the work of Van Dierdonck and Miller [13] who sought to understand the relationship between environmental factors and the design of production systems, perhaps the study done by Swamidass and Newell in 1987 [7] can be credited with having begun the foray into this important area of research. In their study, Swamidass and Newell examined the causal linkages between environmental uncertainty and manufacturing strategy content (specically, exibility) and the role that manufacturing managers play in strategic decision making. They noted that although the literature on business strategy explicitly recognized the importance of environmental uncertainty on strategy, the operations management literature had not paid much attention to the eect of the environment when discussing operations strategy. There have been very few studies since the work of Swamidass and Newell devoted to examining the role that business environment can have on manufacturing strategy content despite the call by researchers for studies in the area [14,15]. Notable among the few studies that have been done was the work of Ward et al. in 1995 [4]. Ward et al. examined the relationships among environmental factors and operations strategy choices among rms in Singapore. Specically, the authors examined the linkages among business costs, labor availability, competitive hostility and environmental dynamism and the operations strategy choices of low cost, quality, exibility and delivery performance. They found signicant paths linking environmental dynamism with the competitive choices of exibility, quality, and delivery performance. Thus, some of their ndings conrmed those of the earlier work by Swamidass and Newell. Badri et al. [3] tested the general model proposed by Ward et al. [4] in another environment and found the model to generally hold true. Specically, Badri et al. [3] used a path analytic procedure to examine the relationships among operations strategy, environmental uncertainty and performance among manufacturing rms in the United Arab Emirates (UAE). They extended the Ward et al. model by including two additional variables: the political environment and government laws and regulations. The goals of this research are to nd out if the general model linking business environmental factors and manufacturing strategy choices is applicable to an emerging economy and secondly to nd out if there are additional factors that might explain the choice of manufacturing strategy in those environments. The additional factors are rm size and the degree of foreign ownership. The goal is not to directly replicate the work of Ward et al. or that of Badri et al. Rather, the goal is to understand the extent to which the general theoretical constructs espoused in those studies are applicable in a dierent economic environment. In that regard, this paper builds on both the work of Swamidass and Newell [7], Ward et al. [4], and Badri et al. [3] as shown in the Table 1. As noted earlier, few studies on manufacturing strategy have been focused on developing or emerging economies. In a recent forum on strategy in emerging economies, Hoskisson et al. [16] noted that research on rm strategies in emerging economies have focused on China and some countries in Central and Eastern Europe, despite the fact that 64 countries in four regions (Africa/Middle East, Asia, Central and Eastern Europe and Latin America), have been identied as emerging economies by the International Finance Corporation (IFC) and the European Bank for Reconstruction and Development [17]. Hoskisson and colleagues stated that the Africa/Middle East region especially has received little or no research attention. This apparent lack of interest might be due to the perception that African countries do not represent a viable source of low cost manufacturing compared to other developing countries. Existing statistics and actions by multinational organizations however paint a dierent picture. For example, between 1981 and 1992, the growth rate of foreign direct investment in Africa exceeded that in all other regions. For youth-oriented products, Africa (with over 40% of its population under 18 years) represents one of the most active growth markets [18].

3 K. Amoako-Gyampah / Omega 31 (2003) Table 1 Summary of previous comparable studies Study Environmental Operations Additional Country of focus variables strategy choices factors Swamidass and Flexibility Manager s USA Newell [7] decision making Ward et al. [4] Business cost, Flexibility, low Performance Singapore labor availability, cost, quality, measures competitive dependability hostility, environmental dynamism Badri et al. [3] Business cost, Flexibility, low Government United Arab labor availability, cost, quality, laws, political Emirates competitive dependability environment hostility, environmental dynamism Current study Business cost, Flexibility, low Firm size, degree Ghana labor availability, cost, quality, of foreign competitive dependability ownership hostility, environmental dynamism Although the study is conned to Ghana, the results could easily be generalized to other developing countries. Many countries in Africa, Latin America and the Caribbean (as in Ghana) have been implementing IMF/World Bank reforms in order to help them modernize their economies. Signicant components of these reforms include the liberalization of trade, devaluation of currencies, removal of governmental subsidies and regulatory reforms. When this happens, manufacturing activity in those countries begins to suer because of the surge in imports, increased competition, increased prices for inputs and so on. Since manufacturing strategy is the manner in which a rm plans to deploy its manufacturing resources and use its manufacturing strength to accomplish its goals, it is expected that dierent strategies will be developed by rms to counteract any perceived threats on manufacturing activities. For rms in these countries, developing appropriate manufacturing strategies becomes a matter of survival. This paper, therefore, seeks to understand how the changes in the business climate brought about by IMF/World reforms aect the choice of manufacturing strategy. 3. Research hypotheses The two main sets of variables to be explored in this study are the business environmental factors and manufacturing strategy choices. While several variables can used to capture business environmental factors in this study will be limited to the four identied by Ward et al [4]: business costs, labor availability, market hostility and dynamism. The eects of business environmental factors on manufacturing strategy can be examined collectively. In other words, the environmental variables are considered as one block and this block inuences strategy content, also as one block. Essentially this was the modeling approach proposed by Ward et al. and replicated by Badri et al. [3]. However, since managers do not necessarily develop manufacturing strategies in combination, it is worth examining how each environmental variable inuences each manufacturing strategy variable separately. In addition, some researchers have begun to question whether the development of manufacturing strategy involves tradeos among the various components or whether it involves compatibility among the components [19]. In other words, is the selection of one strategy component done at the expense of another or can an organization emphasize more than one component simultaneously? Regardless of which of the perspectives one subscribes to, it will be benecial if the factors that inuence each strategy choice can be identied separately rather than the factors that inuence all the strategy components as a group. Therefore, the intent is to examine how individual business environmental factors inuence the selection of each manufacturing strategy component. It is important to understand

4 290 K. Amoako-Gyampah / Omega 31 (2003) these specic relationships as opposed to an overall model, especially in an environment where manufacturing activity might not be very sophisticated. The focus of this paper is not to replicate the many ndings on the relationship between manufacturing strategy and rm performance. The goal is to understand what drives manufacturing strategy. As noted earlier, the arguments for the relationships between business environmental factors and manufacturing strategy has been clearly established in the literature and no purpose will be served in reiterating them here. Rather, the preference is to discuss how the specic business environment in Ghana (and similar situations) might lead to the development of dierent manufacturing strategies. So, in addition to previously established arguments, the following arguments are advanced to support the hypotheses Business environment and exibility Manufacturing exibility refers to the ability to adapt quickly to changes in the environment. Components of manufacturing include ability to quickly introduce new products; produce at dierent volumes; produce dierent mixes of products; and expand facilities. Braglia and Petroni [20], note that the roots of manufacturing exibility performance in an organization lie in the organization s capacity to respond to environmental changes; an environment often fraught with uncertainty and turbulence. One of the conditions that normally accompanies the implementation of IMF/World Bank reforms is the liberalization of trade and the removal of price controls. The eect of this policy is usually a surge in imports. Manufacturing rms in such an environment have to adjust quickly and cost eectively to changing demands in the local market, technical requirements and even changes in the regulatory environment [3]. Manufacturing rms in Ghana were facing declining demand for their products in the face of competition from abroad in the light of IMF/World Bank reforms. They will therefore be expected to develop the ability to react quickly to consumer needs and the demands of their customers who might otherwise look for new suppliers. One would therefore expect that within such an environment, manufacturing rms would include exibility as one of their strategic options in order to respond to these changes in the environment. Our hypothesis is: H1. The concerns that manufacturing managers have about the business environment will have a direct impact on the selection of exibility as a component of manufacturing strategy Business environment and quality Quality can either be an order winner or an order qualier depending on the nature of industry and the amount of competition in the market, among others. Increasing competition can turn an order winner to an order qualier. So, with the increased competition fostered by the IMF/World Bank reforms the emphasis placed on quality is expected to increase and become an essential component of any manufacturing strategy eorts. Specically, one would expect companies to place increasing emphasis on defect reductions, improving supplier quality, and obtaining quality certications that will enable them sell their products both locally and abroad. The hypothesis is as follows: H2. Concerns about the business environment with regard to increased competition, rising costs, dynamic economic conditions will be associated with a decision to emphasize quality as part of a manufacturing strategy Business environment and low cost A low cost strategy depends on a rm s ability to control its manufacturing costs since production costs often form the base for determining the price of a rm s products [21]. The production costs include the costs of materials, energy and labor. As pointed out earlier, following the implementation of IMF/World Bank reforms in Ghana, price controls were removed, previously provided government subsidies on inputs were discontinued, a policy of oating the currency was instituted and a program of privatization of government enterprises initiated. These factors all aect business costs. With that in mind, it is expected that manufacturing rms would develop strategies that allow them to minimize the impact of these structural programs on their production and other business costs. Thus, our hypothesis is: H3. Concerns about rising business costs and other changes in the business environment will be positively associated with a rm s decision to emphasize a low cost strategy as part of its overall manufacturing strategy Business environment and dependability Reliable and fast deliveries (dependability) are important components of value as perceived by customers. In an environment of increasing competition, threats from imported goods and legislative changes, one would expect manufacturers to incorporate dependability into their strategies so as to build the customer loyalty needed to be successful. Importers are likely to face longer lead times than local manufacturers. Therefore, if manufacturing rms in Ghana can build competencies that enable them to deliver products on time consistently and reliably they can build the trust that leads to customer loyalty and increased benets in the market place. The hypothesis is as follows: H4. Concerns about increasing competition, legislative changes and other business environmental factors will be associated with a decision to emphasize dependability as part of manufacturing strategy.

5 K. Amoako-Gyampah / Omega 31 (2003) Contingency factors The interest here is to investigate the extent to which the two variables rm size and degree of foreign ownership aect the relationships between manufacturing strategy choices and business environmental variables. The rationale for each variable is discussed below Firm size A small rm with limited resources will be expected to perceive its business environment as being dierent from that of a large rm with more resources. Also, a small rm is likely to face dierent environmental pressures with regard to the competitiveness of the market it operates in and how it obtains and pays for needed resources compared to a larger rm. The approaches that a large rm uses to benchmark its competitors, nd and negotiate with suppliers (for example) are expected to be dierent from the approaches used by a small rm [22]. Further, the structure of a small rm is likely to be dierent from that of a large rm and previous studies on manufacturing strategy have alluded to a possible linkage between organizational structure and strategy development [23 27]. Lastly, et al. [20] note that a rm s ability to adapt to changing external contingencies might be dependent on the rm s physical, managerial structure, organizational resources, and capabilities. Therefore, one would expect the relationships between business environment and manufacturing strategy to be aected by the size of the rm. The hypothesis is as follows: H5. The eect that business environmental factors have on manufacturing strategy content will depend on the size of the rm Capital structure A rm that is completely locally owned with no foreign ownership is likely to perceive its business environment differently from a rm that has some foreign owners. For example, a locally owned rm might perceive its competition as being just other local rms while a joint venture rm might perceive its competition as coming from both within and outside the country. In addition, joint venture rms are more likely to have greater access to capital and other resources. For example, it has been reported that multinational organizations operating in Brazil have been known to send their executives to Brazil to help manage in turbulent times such as dramatic changes in import taris [28]. As such, rms with some foreign ownership are expected to develop dierent strategies (because of prior experience or increased expertise) in order to react to changes occurring in the business environment as pertained in Ghana at the time of this study (and currently). Additional empirical support for our arguments can be found in the study by McDougall et al. [29]. In that study, the authors examined the manufacturing strategies of 64 new venture rms in the computer and communications equipment manufacturing industries. They observed that the manufacturing strategies emphasized by independent rms were dierent than those emphasized by corporate-sponsored rms. Thus, the nature of the ownership seems to aect the choice of manufacturing strategy. The hypothesis is: H6. The eect that business environmental factors have on manufacturing strategy content will depend on the degree of foreign ownership of the rm. 4. Research method This research employed a sample mail survey. The questionnaire used was the same as the one developed and validated by Ward et al. [4]. The validation procedures are detailed in that study and we provide a description of the reliability assessment later in this paper. The questionnaire was also used by Badri et al. [3] in their study. A slight modication was made to t the environment under study. The complete questionnaire is attached as Appendix A. The following information was sought: 1. The extent to which manufacturing rms in Ghana were concerned with business environmental factors 2. The extent to which these rms planned to emphasize the manufacturing strategy choices of quality, exibility, low cost, and dependability 3. Characteristics of the responding rms The questionnaire was sent to 78 manufacturing rms in Ghana. Probability sampling was not used in selecting the companies. The goal here was to obtain as many usable responses as possible so we relied on local manufacturing associations in identifying participants for the study. Initial solicitation letters were sent to heads of rms that belonged to the Association of Ghana Industries and as well other rms that were identied by the Private Enterprises Foundation in Ghana. All rms that agreed to participate were included in the study. The targeted respondent was a production manager or its equivalent in the organization. A production manager is usually a high level ocial within manufacturing rms in Ghana (equivalent to say vice-president of manufacturing in the US) Measures The measures used in assessing the environmental and manufacturing strategy choices are described below. The items used to assess business cost consisted of eight questions dealing with rising labor, material, transportation, telecommunications, health care, utilities, and rental costs. The respondents were also asked to answer a question about the weakness of the local currency. A 5-point Likert type scale was used with responses ranging from (1) very unimportant to (5) very important.

6 292 K. Amoako-Gyampah / Omega 31 (2003) Six items expressing concern about shortage of managerial and administrative sta, technicians, clerical and related workers, skilled workers, production workers and the inability to operate a third shift were used to assess concerns about labor availability. Competitive hostility was measured using seven items. The questions dealt with rising competition in local and foreign markets, declining demand in local and foreign markets, low prot margins, meeting quality standards and nding reliable suppliers. For both factors, the responses ranged from (1) very unimportant to (5) very important. Questions on dynamism focused on rates at which products and services become outdated, rate of product and service innovations, and changes in consumer tastes and preferences. A ve point Likert type scale with responses ranging from (1) slow to (5) rapid was used. To assess the extent to which rms emphasized low cost as part of manufacturing strategy, four questions on the degree of emphasis placed on reducing unit costs, material costs, overhead costs and inventory levels were asked. Quality was assessed by seeking responses to the degree to which rms placed emphasis on reducing defect rates, improving product performance and reliability, improving vendor quality, implementing quality control circles, and obtaining ISO 9000 certication. The responses for both low cost and quality ranged from (1) no emphasis to (5) extreme emphasis. The scale was (1) no emphasis to (5) extreme emphasis. The questions assessing exibility focused on the extent of emphasis placed on reducing manufacturing lead-time, procurement lead-time, set-up time, and new product development time. The scale was the same as for the two previous manufacturing strategy variables. For delivery performance, the questions focused on the degree of emphasis placed on increasing delivery reliability, delivery speed, improving pre-sales service and technical support, and the degree of emphasis placed on after sales-service. The scale used for low cost was also used here. Demographic and other data collected include the type of industry, the number of employees, the amount of xed assets and the capital structure of the rm. Capital structure referred to whether the respondent rm was wholly locally owned, was a joint venture between local owners and foreign owners or whether it was completely foreign owned. 5. Statistical procedures 5.1. Preliminary analyses A total of 61 responses were received, representing an overall response rate of 78%. Three of the responses were not usable so 58 were used in the subsequent analysis. The sample size of 58 is comparable to sample sizes of similar studies on manufacturing strategy [7,30,31]. Table 2 shows the demographic data on the rms. The table shows Table 2 Demographics of responding rms Industry No. of respondents Percent Industry prole Food Textiles Printing Building products Wood products Chemicals Metals Rubber Others Total Number of employees Frequency Percent Number of employees Less than Fixed assets, millions of cedis Frequency Percent Fixed assets Less than 400 (less than 4) (4 8) (8 12) (more than 12) Capital structure Frequency Percent Capital structure Wholly local Joint venture Wholly foreign the categorization of the rms according to industry, size (number of employees), xed assets, and capital structure. Table 3 shows the correlations among the business environmental variables and the manufacturing strategy choices. Positive and signicant correlations were observed between the business environmental factors and manufacturing strategy choices, and thus the basic premise that a rm s perception of the business environment inuences its choice of manufacturing strategy holds true. There are very few signicant intercorrelations among the independent variables to pose multicollinearity problems. None of the pairwise correlations was greater than 0.6. This was conrmed through collinearity diagnostics using the variance ination factor (VIF) available in SAS. All the VIF values were less than 2.0. Mutlticollinearity is usually a problem when the VIF is greater than 10 [32].

7 Table 3 Means, standard deviations, and intercorrelations of strategy and study variables K. Amoako-Gyampah / Omega 31 (2003) Variable Mean s.d Quality Flexibility Cost Delivery Competitive hostility Labor availability Business costs : Environmental dynamism Capital structure : Firm size (employees) :09 0: : :09 0:17 0: Firm size (xed assets) : : Correlations greater than 0.30 are signicant at p 0: Regression analyses In order to understand the specic nature of the association between the two sets of variables (environmental and strategy) and also to ensure that the associations were not spurious, hierarchical regression analysis was performed. Also, the sample size did not permit the use of covariance analysis. Lastly, since the interest is in knowing the specic manufacturing strategies that rms emphasize and the inuence of each environmental variable on that strategy, the regression analysis was carried out on each individual strategy variable as opposed to all of them at the same time. The business environmental variables competitive hostility, business cost, labor availability and dynamism were operationalized as continuous variables. Similarly, the strategies variables low cost, quality, exibility and dependability, were operationalized as continuous variables. Firm size and degree of foreign ownership were operationalized as categorical variables. Following the arguments used by Lawrence et al. [33], it was felt that the relationships between environmental variables and manufacturing strategy choices would depend more on whether the rm was small or large rather than how small or large it was. Therefore rms were classied into the two categories. Two dierent size measures used, the number of employees and the xed assets of the rm. The second indicator variable was the degree of foreign ownership. The two categories were joint venture rms and wholly local rms. Only one rm was completely foreign owned and it was therefore excluded from the analyses. Table 4 is a summary of the variables investigated. The basic model to be tested in this study is that the types of manufacturing strategies that rms emphasize depend on the specic concerns that they have about the business environment. In other words, manufacturing strategy content can be predicted from specic concerns about business environment. Thus the general model tested with exibility, quality, low cost and delivery dependability as dependent variables is as follows: Flexibility (quality; low cost; dependability) = comhos + 2labav + 3 buscost + 4dyna + error: (1) In addition to the basic model, we investigated the relationships between rm size, and the capital structure of the rm on manufacturing strategy variables. Eq. (2) introduces the three additional variables into the model. The variables are number of employees, xed assets and capital structure. Thus the model tested is (using exibility as an example): Flexibility = 0 + 1comhos + 2labav + 3buscost + 4dyna + 5nemp + 6xa + 7capst + error: (2) Eq. (3) looks at the interactions between the signicant environmental variables in Eq. (1) and the contingency variables. The goal is here is to nd if the relationship between business environmental variables and manufacturing strategy choice is inuenced by rm size and the capital structure of the rm. The model with exibility as the dependent variable is shown below. Similar models were tested using quality, cost and delivery as dependent variables. Flexibility = 0 + 1comhos + 2labav + 3buscost + 4dyna + 5nemp + 6xa + 7capst + 8comhos nemp + 9comhos xa + 10comhos capst error: (3)

8 294 K. Amoako-Gyampah / Omega 31 (2003) Table 4 Variables investigated Variable Quality Flexibility Cost Delivery Comhos Labav Buscost Dyna Nemp Fixa Capst Description Manufacturing strategy choice Manufacturing strategy choice Manufacturing strategy choice Manufacturing strategy choice Perceived competitive hostility business environment variable Labor availability business environment variable Business costs business environment variable Environmental dynamism business environment variable Indicator variable for rm size. Nemp = 1 if number of employees 100, 0 otherwise Indicator variable for rm size. Fixa = 1 if xed assets 1:2 billion cedis, 0 otherwise Indicator variable for capital structure. Capst = 1 if rm is a joint venture, 0 if rm wholly locally owned 6. Results 6.1. Results for exibility The results for the regression of exibility on the business environmental variables, the contingency variables and interaction terms are shown in Table 5. Eq. (1) represents the baseline model with the four business environmental variables as the independent variables. Eq. (2) includes the contingency variables, while Eq. (3) shows the interaction eects. The following can be observed from the results. 1. Among the business environmental factors, competitive hostility is the only variable that has a signicant effect on exibility. This signicant and positive impact of competitive hostility on exibility is maintained even after the addition of the contingency variables. Concerns about labor availability, business costs and environmental dynamism have no signicant impact of the decision to include exibility as part of manufacturing strategy. The regression coecient for the business cost has a negative value (though it is not statistically signicant). It appears that rms are less likely to place an emphasis on exibility when they are concerned about rising business costs. 2. Including rm size and capital structure in the model does not improve the ability to predict that exibility will be included in manufacturing strategy if the business environmental factors are already considered. 3. The eect of competitive hostility on exibility does not depend on rm size or capital structure Results for quality Table 6 shows the hierarchical regression results with quality as the dependent variable. The following results are evident from the table: 1. Competitive hostility is a signicant predictor of quality before and after the addition of contingency variables. The other environmental variables have no signicant effects on the choice of quality as a component of manufacturing strategy. The baseline model explains 22% of the variance in the quality measure. 2. The inclusion of rm size and capital structure improves the ability to explain the variation in the use of quality as a manufacturing strategy component. The two additional variables explained 9% of the variation in quality. Capital structure has a signicant eect on inclusion of quality as part of manufacturing strategy. 3. The interaction between competitive hostility and rm size as measured by the number of employees is slightly signicant (p = 0:0565). Thus, the relationship between competitive hostility and quality is signicantly more positive for larger rms than small rms Results for low cost Table 7 shows the results obtained when low cost was regressed on the business environmental variables, the additional variables and selected interaction terms. The following are evident from the table. 1. Both competitive hostility and business costs have signi- cant eects on the degree of emphasis placed on cost as a component of manufacturing strategy. These signicant relationships are maintained even after the addition of the contingency variables of capital structure and rm size. Perceptions about labor availability and environmental dynamism have no signicant eects. The model with all four business environmental factors explains 28% of the variance in the emphasis that is placed on cost. 2. The inclusion of rm size and capital structure has no signicant eect in our ability to predict the degree of emphasis placed on cost when controlling for business environmental factors.

9 Table 5 Results of hierarchical regression analysis (Dependent variable: exibility) K. Amoako-Gyampah / Omega 31 (2003) Variable Eq. (1) Eq. (2) Eq. (3) Coecient t-stat. Pr t Coecient t-stat. Pr t Coecient t-stat. Pr t Intercept Study variables Competitive hostility Labor availability Business costs 0:32 1: :31 1: :35 1: Environmental dynamism Contingency factors Capital structure 0:13 0: Firm Size 1 (employees) 0:13 0: Firm Size 2 (Fixed assets) 0:03 0: Interactions Hostility rm size 1 0:19 0: Hostility rm size 2 0:43 0: Hostility capital structure 0:19 0: R F 4.55 a 2.32 b 2.01 c Df 4,52 7,47 10,44 R F change df change 3,47 3,44 a p 0:01. b p 0:05. c p 0: The inuence that competitive hostility has on the degree of emphasis placed on cost does not depend on the size of the rm or the capital structure of the rm. Similarly, the eect of business cost on the amount of emphasis placed on low cost as part of manufacturing strategy is not inuenced signicantly by the size of the rm or its capital structure Results for delivery dependability The results of the regression of delivery on the previously identied independent variables are shown in Table 8. The observations are: 1. Unlike the three other manufacturing strategy components, competitive hostility has no signicant eect on the degree of emphasis placed on delivery dependability. Labor availability and business are the two variables that have signicant eects on delivery dependability. 2. The interaction between capital structure and business cost is signicant and is negative. This implies that joint venture rms are less likely to be concerned about business costs when deciding to emphasize delivery dependability as part of manufacturing strategy. 3. The eect that labor availability has on delivery dependability is slightly stronger for larger rms than for smaller rms as measured by the number of employees. 7. Discussion Our results indicate that, just as has been observed for developed economies, business environmental variables do aect manufacturing strategy in an emerging economy. Signicant relationships were found between at least one business environmental variable and each manufacturing strategy component. Thus, even in an emerging economy, such as in Ghana, perceptions about the business environment inuence the degree of emphasis placed on manufacturing strategy content. To conrm any of the rst four hypotheses at least one signicant relationship between a business environmental variable and a manufacturing strategy variable had to be observed. The results obtained in this study indicate that concerns about the competitive hostility of the business environment

10 296 K. Amoako-Gyampah / Omega 31 (2003) Table 6 Results of hierarchical regression analysis (Dependent variable: quality priority) Variable Eq. (1) Eq. (2) Eq. (3) Coecient t-stat. Pr t Coecient t-stat. Pr t Coecient t-stat. Pr t Intercept Study variables Competitive hostility Labor availability :003 0: :03 0: Business costs :04 0: Environmental dynamism :01 0: :01 0: Contingency variables Capital structure Firm Size 1 (employees) 0:19 0: :89 2: Firm Size 2 (Fixed assets) 0:18 0: Interactions Hostility rm size Hostility rm size 2 0:64 1: Hostility capital structure 0:55 1: R F 3.67 a 2.98 a 2.96 b Df 4,52 7,47 10,44 R F change c Df change 3,47 3,44 a p 0:05. b p 0:01. c p 0:10. leads to an intention to place an emphasis on exibility as part of a manufacturing strategy thus conrming H1. Concerns about the competitive hostility also inuence the degree of emphasis that is placed on quality as a component of manufacturing strategy thus conrming H2. Two business environmental variables have signicant eects on the degree of emphasis on low cost as part of manufacturing strategy. Perceptions about competitive hostility and business costs inuence the emphasis placed on cost thus conrming H3. Lastly, H4 was also conrmed through signicant relationships that both business costs and labor availability have on delivery dependability. The results indicate the overwhelming inuence that perceptions about the competitive hostility of the environment have on manufacturing strategy content. The decision to emphasize exibility, quality and low cost strategies are all in- uenced by perceptions about the competitive hostility of the business environment. This is not surprising considering the business environment in Ghana at the time of this study. Although IMF/World Bank reforms were rst initiated in Ghana in 1983, the actual implementation began much later and the eects of the reforms were still evident in Between 1988 and 1999 the growth rate of imports was almost twice the rate of growth of GDP (7.3% versus 4.3%) thus weakening substantially the competitive abilities of local rms [34]. It is not surprising that perceived competitive hostility would have a strong inuence on the emphasis that is placed on manufacturing strategy. This result is consistent with what has been observed in similar environments [3]. Consistent with the results of Ward and Duray [8], concerns about environmental dynamism do not appear to have any signicant impact on manufacturing strategy. While it is possible the eects of environmental dynamism on manufacturing strategy might have been mediated by the other environmental variables (although the low intercorrelations weaken this explanation) a more logical explanation lies in the business environment in Ghana at the time of the study. Environmental dynamism was assessed by asking questions on the rate of innovation of products and services, rates at which products and services become outdated and the changes in consumer tastes and preferences. Most of the companies responding to the survey are not in industries that one would consider to be high technology based. They are operating in mostly in industries where low prices and ability to deliver products quickly are perhaps the order winners. Thus, shorter product life cycles and product

11 Table 7 Results of hierarchical regression analysis (Dependent variable: cost) K. Amoako-Gyampah / Omega 31 (2003) Variable Eq. (1) Eq. (2) Eq. (3) Coecient t-stat. Pr t Coecient t-stat. Pr t Coecient t-stat. Pr t Intercept :92 1: Study variables Competitive hostility Labor availability Business costs Environmental dynamism 0:07 0: :01 0: :04 0: Contingency variables Capital structure Firm Size 1 (employees) :30 0: Firm Size 2 (Fixed assets) 0:22 0: Interactions Hostility rm size Hostility rm size 2 0:70 0: Hostility capital structure 0:42 0: Business cost rm size 1 0:05 0: Business cost rm size 2 0:41 0: Business cost capital structure R F 5.03 a 3.12 a 2.40 b Df 4,52 7,47 13,41 R F change df change 3,47 6,41 a p 0:01. b p 0:05. innovation are not of great concern to these companies and it is not surprising that environmental dynamism did not have any signicant inuence on manufacturing strategy. For the fth hypothesis to be rejected the same relationships between business environmental variables and manufacturing strategy variables should be observed regardless of rm size. However, for quality, the interaction between competitive hostility and rm size as measured by the number of employees is signicant. The results seems to indicate that larger rms, facing greater perceived competitive hostility are more likely to place increasing emphasis on quality than smaller rms, conrming the expectation that the strategies will be dierent (H5). Also, for larger rms concerns about labor availability appear to inuence the degree of emphasis that is placed on delivery dependability. Lastly, Hypothesis 6 is also conrmed through the observation that joint venture rms are more likely than locally owned rms to place more emphasis on quality when facing harsh business environmental conditions. Also, joint venture rms are less likely to be concerned about rising business costs as are wholly local rms when deciding to emphasize delivery dependability. Joint venture rms, with their expected expertise and experience from similar environments perhaps realize the importance of quality more than locally owned rms. 8. Conclusions Only a few studies have examined the impact that business environmental factors have on manufacturing strategy. The focus of most of these studies, however, has been on advanced or new industrialized economies. This paper examines the relationships between manufacturing strategy content and business environment factors in a different context, an emerging economy. The manufacturing strategies that rms develop are expected to be inuenced by the nature of the business environment in which they

12 298 K. Amoako-Gyampah / Omega 31 (2003) Table 8 Results of hierarchical regression analysis (Dependent variable: delivery dependability) Variables Eq. (1) Eq. (2) Eq. (3) Coecient t-stat. Pr t Coecient t-stat. Pr t Coecient t-stat. Pr t Intercept Study variables Competitive hostility Labor availability Business costs Environmental dynamism :19 1: Contingency variables Capital structure 0:17 0: :93 2: Firm Size 1 (employees) 0:18 0: :64 1: Firm Size 2 (Fixed assets) Interactions Labor availability rm size Labor availability rm size 2 0:24 0: Labor availability capital structure 0:28 0: Business cost rm size Business cost rm size 2 0:63 0: Business cost capital structure 1:06 2: R F 3.38 a 1.89 b 1.71 b Df 4,52 7,47 13,41 R F change df change 3,47 6,41 a p 0:05. b p 0:10. operate. Because the environment is often characterized by uncertainty and turbulence, it is expected that rms will emphasize strategies that enable them respond to those conditions. This paper has examined how the business environmental factors of competitive hostility, business costs, labor availability and environmental dynamism aect the degree of emphasis that is placed on the manufacturing strategy choices of exibility, quality, low cost and delivery dependability. Our results conrm that business environment factors do in- uence manufacturing strategy content, even in an emerging economy such as pertains in Ghana. Additionally, it can be concluded that in an environment of increasing imports, regulatory reforms and declining prices the competitive hostility of the environment is the factor that is of greatest concern to manufacturers as they decide on which strategies to emphasize. The next environmental factor that has some in- uence is business costs. Other factors such as environmental dynamism and labor availability are of least concern and have little inuence on the manufacturing strategy content. Sometimes, the inuence that environmental factors have on manufacturing strategies depends on the size of the rm and also on whether it has some foreign ownership. Although the study was carried out in Ghana, it is noted that several countries in Africa, Latin America and the Caribbean face similar environments as most of these countries either have implemented or are implementing IMF/World Bank reforms. Thus, for researchers these environments present opportunities to extend the theory on business environment and manufacturing strategy and in particular to begin examining how the specicity of the environment contributes to specic manufacturing strategy content. For practicing managers, the results of our study provide insights on how manufacturing managers are reacting to business environmental conditions through manufacturing strategies. They compare their own strategies of with those discussed here and see if modications are worth considering.

13 K. Amoako-Gyampah / Omega 31 (2003) An obvious limitation of this study is the relatively small sample size although the sample size compares favorably with the sample size of other studies on manufacturing strategy [7,30,31]. Future studies in other environments should aim at larger sample sizes. This study did not look the role that other variables, beside the business environment, might have on manufacturing strategy content. Other variables such as the culture, decision making techniques, and the political environment might have an eect on the emphasis that managers place on manufacturing strategy variables and these might be worth examining in future studies. Appendix A. Survey questionnaire Part I Using the scale below: Circle the number to indicate the degree to which the following are a current concern to your company? Unimportant Very important Business costs Rising labor cost Rising material cost Rising transport cost Rising telecommunication cost Rising utilities cost Rising rental cost Rising health care cost Weak cedi value Labor availability Shortage of managerial and administrative sta Shortage of technicians Shortage of clerical and related workers Shortage of skilled workers Shortage of production workers Inability to operate third shift Competitive hostility Keen competition in local markets Keen competition in foreign markets Low prot margins Declining demand in local market Declining demand in foreign market Producing to the required quality standards Unreliable vendor quality Indicate the rate of change in the following factors over the next 2 years: Slow Rapid Dynamism Rate at which products and services become outdated Rate of innovation of new products and services Rate of innovation of new operation processes Rate of change in taste and preferences of customers in your industry

14 300 K. Amoako-Gyampah / Omega 31 (2003) Part II Competitive priorities Indicate the degree of emphasis which the company plans to place on the following activities over the next 2 years to remain competitive No emphasis Extreme emphasis Costs Reduce unit costs Reduce material costs Reduce overhead costs Reduce inventory level Quality Reduce defective rates Improve products performance and reliability Improve vendor s quality Implement quality control circles Obtaining ISO 9000 certication Flexibility Reduce manufacturing lead-time Reduce procurement lead-time Reduce new product develop cycle Reducing setup/changeover time Delivery Increase delivery reliability Increase delivery speed Improve pre-sales service and technical support Improve after sales service Part III Prole of participating companies: industry, number of employers, xed assets, and capital structure Circle the industry to which your company belongs Industry Food Textiles Printing Building materials Wood products Chemicals Metals Electronics Transportation equipment Rubber Services Other Indicate the number of employees in your company Less than More than 1100 Indicate your company s xed assets, in hundred million cedis Less than More than 12 Indicate the capital structure of your company Wholly local Joint venture Wholly foreign

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