Mediating role of manufacturing strategy in the competitive strategy and firm performance: evidence from SMEs

Purpose This paper examines the mediating role of manufacturing strategies in the relationship between competitive strategies and firm performance. Design/methodology/approach This study gathered 250 responses from firms in a developing country's key manufacturing sectors, including mechanical, electronics, automotive, textile and food. First, descriptive statistics were applied to fix outliers like respondent biases, missing values and normality issues. Second, exploratory factors analysis (EFA) ensured data adequacy and homogeneity through Kaiser–Meyer–Olkin (KMO) and Bartlett tests. Finally, confirmatory factors analysis (CFA) was used to identify the interactions (direct, indirect and total effects) between latent variables representing manufacturing strategies (quality, cost, delivery and flexibility), competitive strategies (cost-leadership and differentiation) and firms' performance (sales growth and profitability). In total, two structural equation modelling (SEM) models (SEM-I, SEM-II) were created to test the hypotheses. Findings Of the 40 items identified by the literature review, four were outliers, and three could not satisfy the EFA criteria (eigenvalue >1). Only 33 items could therefore reach CFA. SEM–I and SEM-II study results found no direct relationship between competitive strategies and firm performance (−0.03 = β = 0.08; p > 0.05). However, the findings revealed that cost-leadership could be an appropriate strategic choice and improved firms' performance if the quality and delivery are focussed (0.20 = β = 0.87; p < 0.001). While competitive strategies impact manufacturing strategies positively, the latter is only a mediator between the cost-leadership strategy and the firms' performance. Originality/value This research shows that the cost-leadership approach currently seems viable; however, flexibility and cost requirements were not satisfied due to infeasible product differentiation. These results will be beneficial to executives interested in investing in India's industries.