Balancing in the generic strategy and firm performance : evidence from the Chinese ceramic tile industry = 基本竞争平衡战略与企业绩效 : 以中国瓷砖行业为例

Abstract

 How to build sustainable competitive advantage has always been the core topic of strategic management. In 1980, Michael Porter, one of the greatest academics in strategic management, proposed two ways for enterprises to compete: low-cost competition and differentiated competition. Porter believes that if a company wants to build a competitive advantage, it can either adopt a low-cost strategy or a differentiation strategy, that is, maintain strategic purity. Strategic purity proposes that differentiation strategy and low-cost strategy run counter to the resource and capability requirements of an enterprise, so if an enterprise adopts both strategies at the same time, it will fall into the dilemma of being “stuck in the middle”. However, Porter's assumption of strategic purity has two limitations. First, compared to the last century when Porter proposed competitive strategy, the external environment has undergone tremendous changes. In today’s world, the competition of enterprises is becoming more and more intense, and the environment is changing faster and faster. Porter’s competition theory is a static analysis, which cannot explain the complex behavior of enterprises in a dynamic environment. Second, the analysis of competitive strategies mainly relies on developed countries, and pays little attention to developing countries such as China. As a late-developing country, the competition of enterprises often presents a different strategic pattern than that of the developing country. In fact, existing research has begun to criticize the assumption of strategic purity, pointing out that firms can compete with both differentiation and low-cost strategies. This article joins this theoretical dialogue, taking China’s ceramic industry enterprises as an example, to explore how enterprises in late-developing countries participate in international and domestic competition. This paper argues that the rise of Chinese ceramic enterprises depends on the balance between differentiation strategy and low-cost strategy. Although the differentiation strategy and the low-cost strategy have different requirements for the enterprise's resource investment pattern, organizational structure and decision-making pattern, they do not conflict with each other. Companies can build competitive advantage by balancing differentiation strategies and low-cost strategies. This paper proposes two balancing strategies: simultaneous balancing and sequential balancing. Simultaneous balancing refers to the simultaneous differentiation and low-cost strategy of a company. Sequential balancing refers to the implementation of different competitive strategies at different points in time, that is, the differentiation strategy is implemented first, and then the low-cost strategy is implemented, or the low-cost strategy is implemented first, and then the differentiation strategy is implemented. On this basis, this paper explores the impact of simultaneous and sequential balancing on firm performance. This article includes seven chapters. Chapter 1 is the introduction, which describes the research question and the background of this article. Chapter 2 is a literature review, which reviews the competitive strategy theory, generic competitive strategy and industry competition. Chapter 3 is theory and hypothesis. Chapter 4 introduces the research context of this paper and describes the development history of China’s ceramic industry. Chapter 5 is a case study, taking a typical listed ceramic enterprise in China as an example to analyze the competition strategy of the enterprise. I found that a single competitive strategy has been unable to meet the development needs of enterprises, and ceramic enterprises not only implement low-cost competition, but also actively participate in differentiated competition. Chapter 6 is empirical research. Using the data of listed ceramic enterprises in China, this paper finds that simultaneous balancing and sequential balancing have a positive impact on firm performance. Further, industry competition reinforces the effects of simultaneous balancing and sequential balancing on firm performance. Chapter 7 is a discussion, which summarizes the theoretical and practical implications of this research and gives suggestions for future research.