The effect of positioning strategy on firms' performance moderated by product market competition

Abstract

This research aims to investigate the effect of positioning strategies, adopted in a pure or hybrid way, on firms’ performance. In addition, it verifies the moderating effect of product market competition in this relationship, in order to analyse under which levels of competition the adoption of a hybrid strategy is superior to the adoption of generic strategies of cost leadership and product differentiation, separately. A sample with 11,322 firm-year observations was analysed. This sample included publicly available archival data from firms in the industries of consumer goods and services cyclical and non-cyclical, and technology, with shares traded on the main stock exchanges of the G20 countries, for the period 2008-2019. To measure the strategic positioning of firms, this research adopts the principal component analysis technique according to the methodology proposed by Tripathy (2006) and Banker et al. (2014). The level of competition in the product market is measured using the Herfindahl-Hirshman index (Besanko et al., 2013). The results indicate that firms adopting a hybrid strategy are more likely to achieve good performances than the others. They also showed that the relationship between strategic positioning and operational performance is moderated by product market level of competitiveness. In a low competition market, the adoption of a strategy is unnecessary. For low to medium levels of competition, pure strategy appears superior. However, in highly competitive environments, the hybrid strategy is more advantageous. This research joins the theoretical fields of accounting, economics, and business administration, to investigate the relationship between exogenous and endogenous factors in the formation of performance and contributes examining the combined effect between the firms’ strategy and the market competition in obtaining competitive advantage. In addition, the data sample analysed did not restrict to data referring to a single country or a single industry, as observed in the previous literature