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Omega 31 (2003) 287 – 301
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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 con-ned 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 in3uence 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.: +1-336-334-4989; fax: +1-336-334-4083580.
E-mail address: kwasi [email protected]
(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 in3uenced by the
economic environment (interest rates, in3ation, 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 in3uence
the selection of speci-c manufacturing strategies by -rms in
an emerging economy. The study is con-ned 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 in3uence the choice of competitive manufacturing strategies when a company is facing harsh economic conditions. The paper will identify the
0305-0483/03/$ - see front matter ? 2003 Elsevier Science Ltd. All rights reserved.
doi:10.1016/S0305-0483(03)00049-5
288
K. Amoako-Gyampah / Omega 31 (2003) 287 – 301
speci-c relationships among the business environmental factors of costs, labor availability, competitive hostility, and
dynamism and the manufacturing strategies of low cost,
quality, 3exibility and dependability.
Several contributions are evident from this study. First,
the study allows us to understand how models developed
to explain the in3uence 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 diFerent perceptions about the
business environment lead to the adoption of diFerent manufacturing strategies. The third contribution is to determine
if the factors -rm size and degree of foreign ownership help
explain the in3uence 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 1969. 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 (speci-cally, 3exibility) 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 eFect 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.
Speci-cally, the authors examined the linkages among business costs, labor availability, competitive hostility and environmental dynamism and the operations strategy choices of
low cost, quality, 3exibility and delivery performance. They
found signi-cant paths linking environmental dynamism
with the competitive choices of 3exibility, quality, and delivery performance. Thus, some of their -ndings con-rmed
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. Speci-cally, 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 diFerent 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
identi-ed 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
diFerent 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].
K. Amoako-Gyampah / Omega 31 (2003) 287 – 301
289
Table 1
Summary of previous comparable studies
Study
Environmental
variables
Swamidass and
Newell [7]
Operations
strategy choices
Additional
factors
Country of focus
Flexibility
Manager’s
decision making
USA
Ward et al. [4]
Business cost,
labor availability,
competitive
hostility,
environmental
dynamism
Flexibility, low
cost, quality,
dependability
Performance
measures
Singapore
Badri et al. [3]
Business cost,
labor availability,
competitive
hostility,
environmental
dynamism
Flexibility, low
cost, quality,
dependability
Government
laws, political
environment
United Arab
Emirates
Current study
Business cost,
labor availability,
competitive
hostility,
environmental
dynamism
Flexibility, low
cost, quality,
dependability
Firm size, degree
of foreign
ownership
Ghana
Although the study is con-ned 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. Signi-cant 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 suFer
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 diFerent 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 aFect 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 identi-ed by Ward et al [4]: business costs, labor availability, market hostility and dynamism. The eFects
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 in3uences 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 in3uences each manufacturing strategy
variable separately. In addition, some researchers have begun to question whether the development of manufacturing
strategy involves tradeoFs 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 bene-cial if the factors that in3uence each strategy choice can be identi-ed separately rather than the factors that in3uence all the strategy components as a group.
Therefore, the intent is to examine how individual business
environmental factors in3uence the selection of each manufacturing strategy component. It is important to understand
290
K. Amoako-Gyampah / Omega 31 (2003) 287 – 301
these speci-c 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 speci-c business environment in Ghana (and similar situations)
might lead to the development of diFerent manufacturing
strategies. So, in addition to previously established arguments, the following arguments are advanced to support the
hypotheses.
can turn an order winner to an order quali-er. 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 eForts. Speci-cally, one would expect companies
to place increasing emphasis on defect reductions, improving supplier quality, and obtaining quality certi-cations that
will enable them sell their products both locally and abroad.
The hypothesis is as follows:
3.1. Business environment and 3exibility
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 3oating the currency
was instituted and a program of privatization of government
enterprises initiated. These factors all aFect 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:
Manufacturing 3exibility refers to the ability to adapt
quickly to changes in the environment. Components of
manufacturing include ability to quickly introduce new
products; produce at diFerent volumes; produce diFerent
mixes of products; and expand facilities. Braglia and Petroni
[20], note that the roots of manufacturing 3exibility 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 eFect of this policy is
usually a surge in imports. Manufacturing -rms in such an
environment have to adjust quickly and cost eFectively 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 3exibility 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 3exibility as a component of manufacturing strategy.
3.2. Business environment and quality
Quality can either be an order winner or an order quali-er
depending on the nature of industry and the amount of competition in the market, among others. Increasing competition
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.
3.3. Business environment and low cost
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.
3.4. 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 bene-ts 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.
K. Amoako-Gyampah / Omega 31 (2003) 287 – 301
3.5. Contingency factors
The interest here is to investigate the extent to which the
two variables—-rm size and degree of foreign ownership—
aFect the relationships between manufacturing strategy
choices and business environmental variables. The rationale
for each variable is discussed below.
3.5.1. Firm size
A small -rm with limited resources will be expected to
perceive its business environment as being diFerent from
that of a large -rm with more resources. Also, a small -rm is
likely to face diFerent 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 diFerent from the approaches used by a
small -rm [22]. Further, the structure of a small -rm is likely
to be diFerent 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 aFected by the size of the -rm. The
hypothesis is as follows:
H5. The eFect that business environmental factors have on
manufacturing strategy content will depend on the size
of the -rm.
3.5.2. 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 tariFs [28]. As such,
-rms with some foreign ownership are expected to develop
diFerent 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
291
observed that the manufacturing strategies emphasized by
independent -rms were diFerent than those emphasized by
corporate-sponsored -rms. Thus, the nature of the ownership seems to aFect the choice of manufacturing strategy.
The hypothesis is:
H6. The eFect 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
modi-cation 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, 3exibility,
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 identi-ed 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 oRcial
within manufacturing -rms in Ghana (equivalent to say
vice-president of manufacturing in the US).
4.1. 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”.
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K. Amoako-Gyampah / Omega 31 (2003) 287 – 301
Six items expressing concern about shortage of managerial and administrative staF, 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 pro-t 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
certi-cation. 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 3exibility 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 pro:le
Food
Textiles
Printing
Building products
Wood products
Chemicals
Metals
Rubber
Others
Total
11
4
8
8
2
5
9
4
7
58
19.0
6.9
13.8
13.8
3.4
8.6
15.5
7.7
12.1
100.0
Number of employees
Frequency
Percent
Number of employees
Less than 50
50 –99
100 –199
200 – 499
500 –1000
¿ 1000
7
16
19
9
4
3
Fixed assets, millions of cedis
Frequency
Fixed assets
Less than 400 (less than 4)
400 –800 (4 –8)
800 –1200 (8–12)
¿ 1200 (more than 12)
2
7
16
33
Capital structure
Frequency
Capital structure
Wholly local
Joint venture
Wholly foreign
30
25
1
12.1
27.6
32.8
15.5
6.9
5.2
Percent
3.4
12.1
27.6
56.9
Percent
53.6
44.6
1.8
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 signi-cant 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 in3uences its choice of
manufacturing strategy holds true.
There are very few signi-cant intercorrelations among
the independent variables to pose multicollinearity problems. None of the pairwise correlations was greater than 0.6.
This was con-rmed through collinearity diagnostics using
the variance in3ation 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].
K. Amoako-Gyampah / Omega 31 (2003) 287 – 301
293
Table 3
Means, standard deviations, and intercorrelations of strategy and study variables
Variable
Mean
s.d.
1
2
3
4
5
6
7
8
9
10
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
4.03
3.51
3.88
4.03
3.07
2.44
3.98
2.81
0.45
0.60
0.56
0.66
0.89
0.78
0.79
0.67
0.79
0.53
0.71
0.50
0.49
0.50
0.51
0.48
0.38
0.45
0.12
0.19
0.14
0.34
−0:09
−0:03
0.34
0.26
0.44
0.15
−0:10
0.25
0.02
−0:08
0.04
0.56
0.37
0.18
0.42
0.04
0.27
0.10
0.02
0.16
0.36
0.32
0.13
0.06
−0:14
0.02
0.13
0.16
0.18
0.35
0.05
0.04
0.17
0.32
0.15
−0:09
0.10
0.05
0.28
−0:17
−0:09
−0:02
−0:26
0.01
0.33
0.44
0.57
Quality
Flexibility
Cost
Delivery
Competitive hostility
Labor availability
Business costs
Environmental dynamism
Capital structure
Firm size (employees)
Firm size (-xed assets)
Correlations greater than 0.30 are signi-cant at p ¡ 0:05.
5.2. Regression analyses
In order to understand the speci-c 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 speci-c manufacturing strategies that -rms emphasize and the
in3uence 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, 3exibility 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 classi-ed into the two categories. Two
diFerent 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 speci-c concerns that they have about the business environment. In other words, manufacturing strategy content
can be predicted from speci-c concerns about business environment. Thus the general model tested with 3exibility,
quality, low cost and delivery dependability as dependent
variables is as follows:
Flexibility (quality; low cost; dependability)
= 0 + 1 comhos + 2 labav + 3 buscost
+ 4 dyna + 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 3exibility as an example):
Flexibility = 0 + 1 comhos + 2 labav + 3 buscost
+ 4 dyna + 5 nemp + 6 -xa
+ 7 capst + error:
(2)
Eq. (3) looks at the interactions between the signi-cant
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 in3uenced by -rm size and the capital structure of the -rm. The model with 3exibility as the dependent
variable is shown below. Similar models were tested using
quality, cost and delivery as dependent variables.
Flexibility = 0 + 1 comhos + 2 labav + 3 buscost
+ 4 dyna + 5 nemp + 6 -xa + 7 capst
+ 8 comhos ∗ nemp + 9 comhos ∗ -xa
+ 10 comhos ∗ capst error:
(3)
294
K. Amoako-Gyampah / Omega 31 (2003) 287 – 301
Table 4
Variables investigated
Variable
Description
Quality
Flexibility
Cost
Delivery
Comhos
Labav
Buscost
Dyna
Nemp
Fixa
Capst
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
evident from the table:
6.1. Results for 3exibility
The results for the regression of 3exibility 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 eFects. The following can be observed from the
results.
1. Among the business environmental factors, competitive
hostility is the only variable that has a signi-cant effect on 3exibility. This signi-cant and positive impact of
competitive hostility on 3exibility is maintained even after the addition of the contingency variables. Concerns
about labor availability, business costs and environmental dynamism have no signi-cant impact of the decision
to include 3exibility as part of manufacturing strategy.
The regression coeRcient for the business cost has a negative value (though it is not statistically signi-cant). It
appears that -rms are less likely to place an emphasis on
3exibility 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 3exibility will be included in manufacturing strategy
if the business environmental factors are already
considered.
3. The eFect of competitive hostility on 3exibility does not
depend on -rm size or capital structure.
6.2. Results for quality
Table 6 shows the hierarchical regression results with
quality as the dependent variable. The following results are
1. Competitive hostility is a signi-cant predictor of quality
before and after the addition of contingency variables.
The other environmental variables have no signi-cant 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 signi-cant eFect 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
signi-cant (p = 0:0565). Thus, the relationship between
competitive hostility and quality is signi-cantly more
positive for larger -rms than small -rms.
6.3. 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 eFects on the degree of emphasis placed on cost as
a component of manufacturing strategy. These signi-cant
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 signi-cant eFects. 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
signi-cant eFect in our ability to predict the degree of
emphasis placed on cost when controlling for business
environmental factors.
K. Amoako-Gyampah / Omega 31 (2003) 287 – 301
295
Table 5
Results of hierarchical regression analysis (Dependent variable: 3exibility)
Variable
Eq. (1)
CoeRcient
Intercept
Study variables
Competitive hostility
Labor availability
Business costs
Environmental dynamism
Eq. (2)
t-stat.
Pr ¿ |t|
CoeRcient
Eq. (3)
t-stat.
Pr ¿ |t|
CoeRcient
t-stat.
Pr ¿ |t|
2.22
2.33
0.0239
2.33
2.05
0.0457
0.98
0.70
0.4860
0.59
0.09
−0:32
0.20
3.53
0.58
−1:54
1.19
0.0009
0.5623
0.1294
0.2375
0.64
0.09
−0:31
0.13
3.38
0.56
−1:33
0.73
0.0015
0.5754
0.1908
0.4683
1.11
0.16
−0:35
0.10
3.50
0.99
−1:48
0.54
0.0011
0.3267
0.1462
0.5936
−0:13
−0:13
−0:03
−0:45
−0:43
−0:09
0.6451
0.6719
0.9257
0.52
0.49
1.22
0.35
0.24
0.56
0.7311
0.8149
0.5810
−0:19
−0:43
−0:19
−0:27
−0:58
−0:38
0.7858
0.5652
0.7046
Contingency factors
Capital structure
Firm Size 1 (employees)
Firm Size 2 (Fixed assets)
Interactions
Hostility ∗ -rm size 1
Hostility ∗ -rm size 2
Hostility ∗ capital structure
R2
F
Df
UR2
F change
df change
0.26
4.55a
4,52
0.26
2.32b
7,47
0.00
0.25
3,47
0.31
2.01c
10,44
0.05
1.23
3,44
a p ¡ 0:01.
b p ¡ 0:05.
c p ¡ 0:10.
3. The in3uence 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 eFect of business cost on the amount of emphasis
placed on low cost as part of manufacturing strategy is
not in3uenced signi-cantly by the size of the -rm or its
capital structure.
6.4. Results for delivery dependability
The results of the regression of delivery on the previously
identi-ed independent variables are shown in Table 8. The
observations are:
1. Unlike the three other manufacturing strategy components, competitive hostility has no signi-cant eFect
on the degree of emphasis placed on delivery dependability. Labor availability and business are the
two variables that have signi-cant eFects on delivery
dependability.
2. The interaction between capital structure and business
cost is signi-cant and is negative. This implies that joint
venture -rms are less likely to be concerned about busi-
ness costs when deciding to emphasize delivery dependability as part of manufacturing strategy.
3. The eFect 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 aFect manufacturing strategy in an emerging economy.
Signi-cant 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 in3uence the degree of emphasis placed on manufacturing strategy content. To con-rm any of the -rst four
hypotheses at least one signi-cant 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
296
K. Amoako-Gyampah / Omega 31 (2003) 287 – 301
Table 6
Results of hierarchical regression analysis (Dependent variable: quality priority)
Variable
Eq. (1)
Eq. (2)
CoeRcient
t-stat.
Pr ¿ |t|
Intercept
2.03
2.84
0.0064
2.89
Study variables
Competitive hostility
Labor availability
Business costs
Environmental dynamism
0.41
0.02
0.14
0.04
3.33
0.21
0.92
0.32
0.0016
0.8335
0.3639
0.7525
Contingency variables
Capital structure
Firm Size 1 (employees)
Firm Size 2 (Fixed assets)
CoeRcient
Eq. (3)
t-stat.
Pr ¿ |t|
0.22
3.67a
4,52
t-stat.
Pr ¿ |t|
3.61
0.0007
3.07
3.25
0.0022
0.38
−0:003
0.01
−0:01
2.83
−0:03
0.06
−0:08
0.0068
0.9788
0.9558
0.9373
0.42
−0:03
−0:04
−0:01
1.94
−0:25
−0:25
−0:11
0.0589
0.8043
0.8045
0.9103
0.41
−0:19
−0:18
2.00
−0:88
−0:84
0.0509
0.3853
0.4040
2.02
−2:89
1.74
1.97
−2:03
1.16
0.0555
0.0484
0.2507
0.93
−0:64
−0:55
1.96
−1:27
−1:61
0.0565
0.2114
0.1154
Interactions
Hostility ∗ -rm size 1
Hostility ∗ -rm size 2
Hostility ∗ capital structure
R2
F
Df
UR2
F change
Df change
CoeRcient
0.31
2.98a
7,47
0.09
1.77
3,47
0.40
2.96b
10,44
0.09
2.33c
3,44
a p ¡ 0:05.
b p ¡ 0:01.
c p ¡ 0:10.
leads to an intention to place an emphasis on 3exibility as
part of a manufacturing strategy thus con-rming H1. Concerns about the competitive hostility also in3uence the degree of emphasis that is placed on quality as a component of
manufacturing strategy thus con-rming H2. Two business
environmental variables have signi-cant eFects on the degree of emphasis on low cost as part of manufacturing strategy. Perceptions about competitive hostility and business
costs in3uence the emphasis placed on cost thus con-rming H3. Lastly, H4 was also con-rmed through signi-cant
relationships that both business costs and labor availability
have on delivery dependability.
The results indicate the overwhelming in3uence that perceptions about the competitive hostility of the environment
have on manufacturing strategy content. The decision to emphasize 3exibility, quality and low cost strategies are all in3uenced 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 eFects of the reforms were still evident in 1999.
Between 1988 and 1999 the growth rate of imports was al-
most 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 in3uence 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 signi-cant impact on manufacturing strategy. While it
is possible the eFects 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
K. Amoako-Gyampah / Omega 31 (2003) 287 – 301
297
Table 7
Results of hierarchical regression analysis (Dependent variable: cost)
Variable
Eq. (1)
CoeRcient
Intercept
Study variables
Competitive hostility
Labor availability
Business costs
Environmental dynamism
Eq. (2)
t-stat.
Pr ¿ |t|
CoeRcient
Eq. (3)
t-stat.
Pr ¿ |t|
CoeRcient
t-stat.
Pr ¿ |t|
0.62
0.76
0.4514
0.28
0.29
0.7763
−1:92
−1:05
0.3019
0.36
0.11
0.53
−0:07
2.52
0.84
2.95
−0:49
0.0150
0.4055
0.0048
0.6244
0.36
0.12
0.53
−0:01
2.22
0.93
2.66
−0:06
0.0310
0.3561
0.0107
0.9560
0.75
0.15
0.78
−0:04
2.78
0.98
1.80
−0:22
0.0082
0.3314
0.0796
0.8243
0.05
0.38
−0:22
0.19
1.46
−0:82
0.8473
0.1521
0.4155
1.27
−0:30
3.47
0.58
−0:12
1.40
0.5647
0.9062
0.1679
0.36
−0:70
−0:42
−0:05
−0:41
0.03
0.51
−0:96
−0:96
−0:08
−0:60
0.06
0.6111
0.3422
0.3428
0.9354
0.5487
0.9560
Contingency variables
Capital structure
Firm Size 1 (employees)
Firm Size 2 (Fixed assets)
Interactions
Hostility ∗ -rm size 1
Hostility ∗ -rm size 2
Hostility ∗ capital structure
Business cost ∗ -rm size 1
Business cost ∗ -rm size 2
Business cost ∗ capital structure
R2
F
Df
UR2
F change
df change
0.28
5.03a
4,52
0.32
3.12a
7,47
0.04
0.87
3,47
0.43
2.40b
13,41
0.11
1.38
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 signi-cant in3uence 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 signi-cant. 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, con-rming the expectation that the
strategies will be diFerent (H5). Also, for larger -rms concerns about labor availability appear to in3uence the degree
of emphasis that is placed on delivery dependability. Lastly,
Hypothesis 6 is also con-rmed 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 in3uenced
by the nature of the business environment in which they
298
K. Amoako-Gyampah / Omega 31 (2003) 287 – 301
Table 8
Results of hierarchical regression analysis (Dependent variable: delivery dependability)
Variables
Eq. (1)
Eq. (2)
CoeRcient
t-stat.
Pr ¿ |t|
Intercept
1.44
1.70
0.0956
1.44
1.43
0.1590
3.78
2.04
0.0480
Study variables
Competitive hostility
Labor availability
Business costs
Environmental dynamism
0.08
0.28
0.38
0.08
0.55
2.12
2.04
0.52
0.5855
0.0384
0.0467
0.6043
0.14
0.27
0.41
0.01
0.85
1.94
1.96
0.02
0.4001
0.0585
0.0556
0.9825
0.12
0.22
0.02
−0:19
0.67
0.84
0.04
−1:04
0.5082
0.4033
0.9716
0.3065
−0:17
−0:18
0.16
−0:67
−0:64
0.60
0.5063
0.5229
0.5492
−3:93
−3:64
3.18
−2:03
−1:55
1.36
0.0486
0.1289
0.1809
0.82
−0:24
−0:28
0.39
−0:63
−1:06
1.81
−0:54
−0:84
0.61
−0:94
−2:12
0.0770
0.5914
0.4050
0.5435
0.3545
0.0399
Contingency variables
Capital structure
Firm Size 1 (employees)
Firm Size 2 (Fixed assets)
CoeRcient
Eq. (3)
t-stat.
Pr ¿ |t|
Interactions
Labor availability ∗ -rm size 1
Labor availability ∗ -rm size 2
Labor availability ∗ capital structure
Business cost ∗ -rm size 1
Business cost ∗ -rm size 2
Business cost ∗ capital structure
R2
F
Df
UR2
F change
df change
0.21
3.38a
4,52
0.22
1.89b
7,47
0.01
0.14
3,47
CoeRcient
t-stat.
Pr ¿ |t|
0.35
1.71b
13,41
0.14
1.39
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 aFect the degree of emphasis that is placed on the manufacturing strategy choices
of 3exibility, quality, low cost and delivery dependability.
Our results con-rm that business environment factors do in3uence 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 in3uence is business costs. Other factors such as environmental dynamism and labor availability are of least concern and
have little in3uence on the manufacturing strategy content.
Sometimes, the in3uence 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 speci-city of the
environment contributes to speci-c 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 modi-cations
are worth considering.
K. Amoako-Gyampah / Omega 31 (2003) 287 – 301
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
299
variables such as the culture, decision making techniques,
and the political environment might have an eFect 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
1
1
1
1
1
1
1
1
2
2
2
2
2
2
2
2
3
3
3
3
3
3
3
3
4
4
4
4
4
4
4
4
5
5
5
5
5
5
5
5
Labor availability
Shortage of managerial and administrative staF
Shortage of technicians
Shortage of clerical and related workers
Shortage of skilled workers
Shortage of production workers
Inability to operate third shift
1
1
1
1
1
1
2
2
2
2
2
2
3
3
3
3
3
3
4
4
4
4
4
4
5
5
5
5
5
5
Competitive hostility
Keen competition in local markets
Keen competition in foreign markets
Low pro-t margins
Declining demand in local market
Declining demand in foreign market
Producing to the required quality standards
Unreliable vendor quality
1
1
1
1
1
1
1
2
2
2
2
2
2
2
3
3
3
3
3
3
3
4
4
4
4
4
4
4
5
5
5
5
5
5
5
Indicate the rate of change in the following factors over the next 2 years:
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
Slow
1
1
1
1
Rapid
2
2
2
2
3
3
3
3
4
4
4
4
5
5
5
5
300
K. Amoako-Gyampah / Omega 31 (2003) 287 – 301
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
1
1
1
1
2
2
2
2
3
3
3
3
4
4
4
4
5
5
5
5
Quality
Reduce defective rates
Improve products performance and reliability
Improve vendor’s quality
Implement quality control circles
Obtaining ISO 9000 certi-cation
1
1
1
1
1
2
2
2
2
2
3
3
3
3
3
4
4
4
4
4
5
5
5
5
5
Flexibility
Reduce manufacturing lead-time
Reduce procurement lead-time
Reduce new product develop cycle
Reducing setup/changeover time
1
1
1
1
2
2
2
2
3
3
3
3
4
4
4
4
5
5
5
5
Delivery
Increase delivery reliability
1
Increase delivery speed
1
Improve pre-sales service and technical support 1
Improve after sales service
1
2
2
2
2
3
3
3
3
4
4
4
4
5
5
5
5
Costs
Reduce
Reduce
Reduce
Reduce
unit costs
material costs
overhead costs
inventory level
Part III
Pro-le 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
Electronics
Transportation equipment
Rubber
Chemicals
Services
Metals
Other
Indicate the number of employees in your company
Less than 50
50 –99
100 –199
200 – 499
Indicate your company’s :xed assets, in hundred million cedis
Less than 4
4 –8
8–12
Indicate the capital structure of your company
Wholly local
Joint venture
Wholly foreign
More than 12
500 –1000
More than 1100
K. Amoako-Gyampah / Omega 31 (2003) 287 – 301
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