Effect of generic strategic responses on the performance of Yana trading limited Kenya

Abstract

Tyre manufacturing industry is critical to Kenya and the East Africa economy as a whole in terms of job creation and its contribution of GDP growth for the East Africa region which is forecast at 5.3% in 2018, up from 4.5% in 2016. Despite this major contribution, it is observed that some firms in the sector are facing a shaky financial situation. For instance, from 2014 to 2018, Yana Trading Limited Kenya faced tight liquidity problems and stiff trade competition. Consequently, the sales revenues in 2017 declined by 9% from 2.7 billion in 2016 to 2.45 billion in 2017 and a profit margin declined to 5.0% in 2017. Attempt to reverse this bad performance Yana Trading Limited Kenya continued with its programs on reducing overhead costs by 11% against 2016 adjusted levels but with little success as the profit margin was still low. Generic strategic responses are choices made by a firm in order to gain a competitive advantage through the alignment of the organization’s objectives to the external environment for its effectiveness. Past studies on the effect of generic strategies on organizational performance exist but majority of those studies were done in banking, petroleum, telecommunication sector whose context and circumstances does not relate with Tyre manufacturing industry. Moreover, past studies on strategic responses and performance dwelt on looking at how each aspects of strategic responses individually affect an organization performance rather than aggregated approach that seek to establish how three aspects of generic responses collectively affect the firm’s performance. Consequently, the effect of the three generic strategies: Market focus strategies, cost reduction strategy and differentiation strategy on organizational financial performance are not known especially in the context of Tyre manufacturing industry. Therefore, the purpose of this study is to effect of generic strategic responses on financial performance of Yana Trading Limited Kenya. Specifically, the study determined the effect of market focus strategy, product differentiation and cost leadership strategy on the performance of Yana Trading Limited Kenya. This study was guided by Porter’s generic strategic model in a correlation survey design. The study used a target population of 112 employees working at Yana Trading Limited Kenya. Simple random sampling was utilized to select a sample size of 44. The study utilized questionnaires as data collection tools. Validity of the research instrument was established through expert review while the reliability test yielded a Cronbach’s Alpha coefficient between 0.83 0and 0.865. The findings revealed that generic strategic responses employed by the Yana Trading Limited Kenya explained 68.1% (R2 =0.681) variation in Yana tyres performance. It was further revealed that all the three dimensions put into consideration namely: market focus (β = 0.812, p=0.05) and product differentiation strategies (β=0.773,p= 0.05) and cost leadership strategies (β = 0.667, p= 0.05) all had a significant positive effects on performance of Yana tryes trading limited on performance of the company. The study concludes that all the three strategies studied (market focus strategies, product differentiation strategies and cost leadership strategies) all have a direct significant effect of Yana tyres trading limited Therefore, the study recommends that the strategies employed be the Yana tyres trading limited be enhanced to significantly increase the level of performance. The findings of the study will be useful to the Yana tyres stakeholders by providing new insights on how to improve the organizational performance of their business.