ABSTRACT
 
Michael Porter, the well-known management guru from Harvard
Business School developed the concept of "Business Level Generic
Strategies" aimed at building and sustaining competitive
advantage. The two most important generic strategies suggested
by him are cost leadership and differentiation. According to
Porter, to generate above average returns, a firm needs to make
a choice of following either one of the above two strategies. A
firm that applies both strategies will end up "stuck in the
middle" and will not generate above-average returns. This study
showed that Porter's contention need not be true in all
industries. Using data from case-studies involving firms in the
Malaysian food industry, the study showed that integrated cost
leadership/differentiation strategy can help firms achieve high
levels of performance. The firms in the study pursued
differentiation strategy in sales and marketing. However, they
also stressed continuous innovation in their process technology
and generating volume to achieve economies of scale - the basis
for cost leadership strategy. In other words, against the advice
of Michael Porter, they successfully applied the "stuck-in-the
middle" strategy to increase their competitiveness.
 
INTRODUCTION
 
The writings of the American management-guru and
Harvard-Professor Michael Porter are considered to be among the
most influential in the field of strategic management. Through a
series of writings Porter influenced a shift in the focus of the
literature on strategies from strategic planning to strategic
management. As a result, a broad range of concepts and
frameworks were generated to assist strategic planners in coming
up with plans to build and sustain competitive advantage.
 
One of his most significant contributions is to advance the
concept of "Generic Strategies" (See Porter, 1985, pp. 1- 163
for further elaborations of the concept). According to Porter, a
firm achieves competitive advantage by doing two things:
firstly, by picking the right industry and secondly by choosing
the right generic strategy. The generic strategy can be any of
the three business-level generic strategies suggested by him -
cost leadership strategy, differentiation strategy or focus
strategy. With the utilization of value chain analysis,
activities in the company can be fragmented to achieve any one
of the generic strategies that will yield above average returns.
Each one of the generic strategies must be specifically applied
to the activities to be performed in order for the firm to be
successful. According to Porter, firms should be specific in
their choice of competitive strategy or run the risk of being
"stuck in the middle", which will prevent them from generating
above average returns.
 
Study Objectives
 
This study aims to answer the following questions: a. Are
differentiation and low cost leadership strategies the only two
mutually exclusive options available to business firms?  b. If
business firms adopt the integrated cost
leadership/differentiation strategy (the so-called
"stuck-in-the-middle" strategy), are they going to suffer in
terms of performance?  c. What are the implications for firms in
terms of value chain activities if they adopt the integrated
cost leadership/differentiation strategy?
 
LITERATURE REVIEW
 
The essence of a firm's business-level strategy is choosing to
perform activities differently or to perform different
activities from rivals (Hitt et al., 2001). Michael Porter's
theory of business-level generic strategy contains two elements;
first a scheme for describing firms' competitive strategies
according to their market scope i.e. focused or broad, and
second, their source of competitive advantage, i.e. cost or
differentiation (Swink and Hegarty, 1998).
 
According to Porter, each of the generic strategies involves a
fundamentally different route to competitive advantage,
combining a choice about the type of competitive advantage
sought with the scope of the strategic target in which
competitive advantage is to be achieved. Each implies different
skills and requirements for success, which commonly translate
into differences in organization structure and culture.
Competitive advantage can be achieved through the value chain, a
template that a firm uses to understand its cost position and
the existing and potential sources of differentiation. The value
chain is also used to identify the multiple means that might be
used to facilitate the implementation of business-level strategy
(Porter, 1985).
 
The value chain, which is segmented into primary and support
activities are composed of nine generic categories of
activities, linked together in characteristic ways. Firms
competing in the same industry sector are likely to have a
similarly configured value chain. However, the differences that
exist in the value chain of the firms will determine the
potential competitive advantage (Porter, 1985).
 
Empirical evidence suggested wide spread application of Porter's
generic strategy model throughout various industries such as in
the healthcare industry (Hlavacka, Bacharova, Rusnakova and
Wagner, 2001), steel and cardboard industries (Calori and
Ardisson, 1988), adhesive and sealant industry (Helms, Dibrell
and Wright, 1997) and crystal glass industry (Marques, Lisboa,
Zimmerer and Yasin, 2000). Various activities within a business
firms value chain were aligned to the generic strategies
approach such as time-based differentiation (Jacome, Lisboa and
Yasin, 2002), vendor development (Chakraborty and Philip, 1996),
manufacturing (Kotha and Vdlamani, 1995; Kotha and Orne, 1989),
product differentiation (Swink and Hegarty, 1998), quality
differentiation (Beal and Lockamy III, 1999) and marketing
(Dawes and Sharp, 1996). Even in the Malaysian context, a study
by Khairuddin (2000) found out that 30 percent of the small and
medium enterprises (SMEs) in Malaysia followed the
differentiation strategy while 26 percent adopted the cost
leadership strategy.
 
However, there are also sceptical views of Porter's ideas. If a
lowest-cost competitor offers fewer differentiating attributes
at a lower price, then its ability to generate above-average
profits will only depend on its ability to manage its cost base
thereby limiting the number of alternative routes for achieving
competitive advantage (Partridge and Perren, 1985). Mintzberg,
as quoted by Kotha and Vadlamani (1995) argued that cost
leadership based on cost minimization does not provide an
advantage itself. It has to result in below average market
prices to be a competitive advantage. Thus, he labels cost
leadership strategy as differentiation by price.
 
Wheelen and Hunger (1985) highlights the risk of cost leadership
when competitors imitate the firm's product, technology changes
that allow competitors to lower their cost, or when other bases
for cost leadership erode for the firm. The CEO of Emerson,
Charles Knight, supported this view and acknowledged cost
cutting was taking a heavy toll on research and development
efforts in his firm, which was required to facilitate the firm's
growth (Helms et al., 1997). Another critic says that cost
leadership, unless demonstrated by a lowest-price strategy, is
relatively invisible and therefore cannot be used to win
customers and gain competitive advantage (Partridge and Perren,
1985).
 
Miller (1998) argued that past managers were often ill-advised
to concentrate on a single competitive advantage. However, he
found that in every industrial sector, the highest performance
levels are those seen by firms holding both types of competitive
advantage simultaneously (shown in Table 1). Firms in the
integrated cost leadership/differentiation strategy category
enjoy returns on investment ranging from the mid-to high 30s in
percentage terms when the average ROI for all business units in
the database near 22 percent - such performance must be
considered outstanding.
 
Miller, therefore, suggests that an integrated strategy,
combining some aspects of differentiation with
cost-effectiveness, has many advantages. It avoids, he claims,
the risk of overspecialization while allowing the firm to
benefit from multiple abilities and the synergies between them.
 
In another study, it was found that the highest-performing
companies in the Korean electronic industry were those that
combined both the differentiation and cost leadership
strategies, suggesting the viability of the integrated strategy
in different nations (Hitt et al, 2001). Marques et al., (2000),
when studying the Portuguese crystal glass industry found
positive results in firms adopting the integrated strategy.
Hlavacka et al. (2001), when examining the performance
implication in Slovak hospitals found an integrated strategy was
associated with superior performance. Calori and Ardison (1998)
identified the differentiation strategy with strong cost
controls to be profitable in stalemate industries.
 
Helms et al. (1997), found firms that simultaneously compete
with both strategies surpassed the firms that only compete with
the low cost strategy in cost containment efforts, since they
have lower manufacturing expenses, lower relative direct costs
and higher capacity utilization. They also noted firms that
simultaneously compete with both strategies seem to surpass the
firms that only compete with the differentiation strategy, since
they have been able to charge significantly higher prices. This
explanation was derived from the benefits that were drawn from
the firms' emphasis on quality, product or service innovations,
and systems innovations as well as their emphasis on process
innovations and cost controls. They, therefore, proposed that
low cost and differentiation strategies be simultaneously
employed.
 
Partridge and Perren (1985) suggested that, rather than there
being three discrete positions, there is actually a continuum of
cost/price/profit positions with successful firms achieving
sufficient differentiation and sufficient cost leadership
effectively to guarantee superior profits. Successful
differentiators can increase market share and achieve cost
advantage from economies of scale and experience curve effects
(Partridge and Perren, 1985).
 
Hitt et al. (2001) also support the possibility of successful
implementation of an integrated low-cost differentiation
strategy. They listed three approaches to organizational work
that can make this possible, namely flexible manufacturing
system, information networks across firms and total quality
management systems.
 
In conclusion, Porter's contention that an integrated cost
leadership-differentiation strategy will result in mediocre
performance of firms that pursue it has been questioned by other
strategy scholars. This study hopes to contribute to the growing
body of literature that is critical of Michael Porter's
propositions by presenting some data from Malaysian firms.
 
RESEARCH METHODOLOGY
 
This study used the case analysis research method. Four major
firms in the Malaysian food manufacturing industry were
selected. They were Ajinomoto, Nestle, Fraser and Neave and
Philip Morris. Convenience sampling method was used to select
the firms from the pool of multinational food companies
operating in Malaysia.
 
Primary data were collected through semi-structured personal
interviews with current and former senior executives of the
firms as well as business consultants who had experience
consulting for the firms. Most of the interviews lasted an
average of two and a half hours. Follow-up interviews were
conducted through the telephone. Secondary data were obtained
from annual reports, media reports, homepages of the respective
firms and other published sources.
 
Background Information of Respondent Firms
 
Ajinomoto (Malaysia) Berhad, a Japanese multinational
corporation was established in Malaysia in 1965, it
manufacturers and distributes monosodium glutamate, artificial
sweetener, edible oil, and hydrolysed vegetable protein based
products. Ajinomoto currently monopolizes the monosodium
glutamate business capturing almost 90 percent of the Malaysian
market share. Although sales in the financial year 2000/2001
grew by only 3.7 percent when compared with the previous year,
the profit before taxation (PBT) grew by almost 100 percent in
the corresponding period, giving evidence of a concerted effort
to reduce cost as to remain competitive in a post AFTA era.
 
Nestle (Malaysia) Berhad, a Swiss multinational corporation
established in Malaysia in 1918 and listed on the main board of
KLSE, the firm manufactures and distributes a wide variety of
food products, for example, confectionery, beverages, instant
noodles, dairy, seasonings and ice creams. Nestle is the number
one food company in Malaysia with a sales turnover of RM2.59
billion in 2001 (RM2.2 billion in 2000).
 
Formerly known as Malaya Glass Berhad, Fraser and Neave
(Malaysia) Berhad (F & N) is involved in the manufacturing and
sale of glass containers, soft drinks and dairy products. The
Singaporean multinational corporation is listed on the KLSE main
board. As a soft drinks manufacturer and distributor, the F&N
Group's brand Coca-Cola holds more than 70 percent share in the
cola market segment while "100 Plus" has more than 90 percent
share of the isotonic segment. The firm's turnover in 2001 was
RM1.54 billion. Profits grew by 12.4 percent and 11.2 percent in
2002 and 2001 compared to 2000. The firm noted strong recovery
in the volume of soft drinks and a favourable shift in demand
towards higher value products, from returnable glass bottles to
modern packages like cans and PET, contributing to the profits.
 
Philip Morris (Malaysia) Sendirian Berhad, a US-based
multinational corporation is a private limited entity and
manufactures some of the well-known cigarette brands such as
Marlboro and L & M. Marlboro brand is in the number two position
in Malaysia after Dunhill with a market share of 18 percent.
Only 20 percent of the 14 billion cigarettes manufactured
annually are for local consumption; the rest are exported.
 
RESEARCH FINDINGS
 
Using Porter's value chain approach, each firm was investigated
on their primary and supporting roles. Methods deployed by them
at each category of the value chain were also examined.
Discussion and findings are as follows.
 
Summary and Findings of Primary Activities in the Value Chain
 
Incoming Logistics Approach
 
The first step in the primary activity is the inbound logistics.
All the firms have a system to receive inputs as tabulated in
Table 2. The type of inputs varies from one firm to another such
as natural and seasonal farm inputs that require special
precautions, while others, i.e. flavours and packaging materials
are available throughout the year and don't need any special
precautions.
 
All firms reflect their desire of producing consistently and
efficiently through quality inspections. These inspections are
to prevent substandard inputs into the manufacturing system thus
ensuring defects are low, a cost leadership approach and quality
guaranteed, and a differentiation approach. Because of the
nature of inputs they are utilizing, JIT cannot be practised by
any of them except by F & N, which had a control over its
inputs. According to Evans and Lindsey (1999), JIT reduces
inventory holding cost but requires inventories to be reduced to
the barest minimum. Thus to maintain production, the quality of
materials must be consistent since no buffer inventories exist
to take up defects. Seasonal and natural inputs as subscribed by
Nestle, Philip Morris and Ajinomoto do not allow them to
practice JIT, either the cost of these inputs will escalate or
production schedule may be interrupted. There is a high cost of
maintaining key perishable raw materials for Nestle and Philip
Morris but these firms are not willing to sacrifice their
premium inputs quality for cost. Only F & N is pursuing
reduction of the cost of packaging inventory, which currently
stands at three weeks.
 
In summary, these firms are not willing to dent their image if
the process cannot be controlled; however, if the opportunity
arises, they will take the cost reduction approach as F & N is
currently doing.
 
Operation Approach
 
The operation link is the next set of activities in the primary
value chain functions. According to Porter (1985), firms with a
global market share should stress world products rather than
country-tailored ones to gain economies of scale (Porter, 1985).
All these firms manufacture standardised global products;
however, Nestle and Ajinomoto have product lines that are
modified to cater local needs. However, the market share of
these types of products is insignificant, contributing only 5
percent of the total sale for Ajinomoto (figures are not
available for Nestle).
 
All these firms have a 24-hour operation that has a positive
impact on the average fixed cost through the lowering of cost in
producing one unit of product (Hall and Leiberman, 2001).
Standardised products and continuous operations allow these
firms to achieve economies of scale. In addition, these firms
are also running on a complete automated production line with
only minimum human supervision with the exception of Ajinomoto.
This too reduces the average total cost of producing one unit of
product. F & N is currently moving towards a complete integrated
manufacturing line to improve efficiency and flexibility - an
integrated strategy approach (Hitt et al., 2001).
 
According to the respondent for Nestle, its production cost is
very competitive and is used as a benchmark by competitors.
These are definitely qualities of a cost leadership firm
(Porter, 1985). Nestle manages to increase its efficiency and
product consistency through major manufacturing innovations.
Innovation is its answer to increasing facilities capabilities
when production of a cash cow product is limited by facilities
design, as in the case of Nestlé's Milo plant in Chembong. There
is also a concentrated effort by the firm to reduce cost through
continual improvement projects, however it should not be done at
the expense of quality. Marques et al., (2000) recognized
innovation in manufacturing processes is important for firms
that pursued a cost leadership strategy.
 
Ajinomoto has reached the optimum output of their machineries;
any increase requires new investment, which the firm has no
intention of doing. Hence, continual improvement projects are
initiated within the firm and managed to save RM 3 million which
equates to a reduction of 9 percent of total cost of producing a
product unit and increased profit before taxation by 100 percent
for Financial Year 2001/2002. Reduction in cost positively
contributed to above average returns and allows the firm to
remain competitive in a post-AFTA era. In the case of Philip
Morris and F & N (Coca Cola), any major improvements are carried
out by their parent company. Helms et al. (1997) identified some
of the major innovations initiated by Philip Morris, which
contributed towards the reduction of average total cost. This
technology was then disseminated throughout their subsidiaries.
 
These firms emphasize consistent manufacturing - as a result,
quality control inspection and statistical process control are
an integral part of their production line. F & N as well as
other firms, is subjected to Coca Cola internal audits, which
are very stringent control measures. According to Swink and
Hegarty (1998), in their study linking product differentiation
with core manufacturing capabilities, control is the ability to
direct and regulate operating processes. A necessary requirement
for control is feedback, a property that permits comparisons of
actual output values to desired output values. In a larger
sense, control refers to the management's ability to understand
and reduce sources of unwanted variations in a process. Miller
(1998) on the other hand emphasized the importance of SPC and
other broad range quality-control analysing techniques aimed at
manufacturing, for firms that pursue differentiation strategy.
 
Outbound Logistics Approach
 
Outbound logistics is the next link within the value chain.
Lead-time, inventory level, warehousing and transportation are
some of the activities applied within this link. The findings
are summarized in Table 4.
 
Technology has already made an impact on outbound logistics. F &
N and Philip Morris used the hand held point of purchase (POP)
gadget to take orders from customers. This reduced many steps in
order processing. All firms depend heavily on the management
information system for order generation, establishing
First-In-First-Out (FIFO) policy, and monitoring of the
inventory system. Almost all products produced by the food
industry carry the expiry date, thus FIFO needs to be practised
strictly or the firm will incur opportunity costs if it places
near expiring products on the shelf, in addition to the product
losing its freshness. Hence, according to the respondents, a
management information system within these firms, i.e. ERP and
MRP, plays an important role in making sure the interface
between the customer and the firm is smooth, customer-oriented
and cost effective.
 
Nestle has implemented - state-of-the-art warehousing facilities
called automatic shelf and replenishment system to monitor and
deliver its products. This reduces the warehousing operating
cost and increases efficiency in delivery. Through innovation,
Nestle manages to achieve both strategies. The practice by
Philip Morris and Nestle to pay visits to their customers has
ensured constant availability of their products on the shelf.
 
Once orders are received from customers, these firms will ensure
ordered products are delivered within 24 to 48 hours. F & N is
trying to improve on the delivery lead-time to ensure constant
availability of their products in the market. The ability to
deliver accurately within the stipulated time frame is
recognized as a differentiation characteristic by Jacome et al.
(2002), an indication of good service. F & N is also trying to
reduce the holding inventory, currently standing at two weeks,
an example of cost reduction. Buffer inventories for others
range from one to two months, depending on the product variant.
 
When the products are transported, depending on the level of
protection required for the product, the firms, i.e. Nestle and
Philip Morris, will take appropriate measures such as
refrigerated trucks, or bonded trucks to deliver these products.
For these firms, according to the respondents, quality of a
product should not be jeopardized at any part of the value chain
link even if it means incurring additional cost.
 
Marketing and Sales Approach
 
Firms generally recognize sales and marketing activities as an
important part of the value chain link. From the marketing
perspective, the firm's approach towards advertising and
promotion, pricing strategy, product positioning and
distribution will determine the profit margins. An evaluation of
these factors is summarized in Table 5.
 
Table 5 shows all the investigated firms command a respectable
market share in the Malaysian market. They are either the market
leader or hold the number two position. They are capable of
generating the volume required to achieve economies of scale.
Although their products are portrayed as premium and the pricing
is higher than competitors, they are still able to capture the
market share. Premium quality products will incur higher costs
but are differentiated positively; hence this increases the
market share, which will have a positive impact on the
cumulative volume of production and decrease the average total
cost of producing one unit - a combination of economies of scale
and differentiation (Helms et al., 1997).
 
According to the respondents, the aggressive advertisement and
promotional activities launched by each firm are to increase
brand awareness that leads to brand loyalty. Nescafe, Milo and
Ajinomoto are household brand names that are fast associated
with product category. This reflects the success of these
brands, which can be clearly differentiated by consumers. Along
with Marlboro and Coca Cola, these brands are household names in
Malaysia reflecting the success of brand retention in the
long-term memory of a person (Mowen and Minor, 1998), an
indication of successful advertisement and promotion campaigns.
 
These firms have invested heavily in aggressive advertisement
and promotional campaigns and successfully differentiated their
products from their competitors. Ajinomoto and Nestle spent
approximately 6 percent and 7 percent respectively of their
total turnover for advertisement and promotional activities.
Jacob et al. (2002), Porter (1985), Marques et al., (2000), and
Miller (1998) had classified advertising and promotion as a mean
to differentiate products.
 
Educating costumers on how to use the firm's products is part of
the consumer services provided by Ajinomoto and Nestle,
especially for seasonings. Cooking demonstrations conducted by
home economists and recipe compilations given out to customers
or potential customers are two common methods of customer
education deployed by these firms. These firms will also host
series of cooking shows on TV or in their premises to educate
and promote their products. Chase and Gravin had identified
these as service roles in improving the information and image
characteristics of product differentiation (Swink and Hegarty,
1998).
 
Every investigated firm values its relationship with the
distributors. These firms realize without their distributors,
the products will never reach the end users since more than 60%
of their sales are through them. These firms keep some control
over their distributors and retailers to ensure their product
quality is not jeopardized when the products are placed in the
market. F & N has a closed distribution network whereby their
distributors are not allowed to carry competitors' products.
Hence, a close working relationship is paramount between the
distributors and the firm.
 
Philip Morris, barred by regulations to advertise directly, uses
distributors or retailers to display firm's advertisements at
points of purchase. The firm will provide all kinds of
incentives to retailers to promote their products. Since
indirect sales constitute a large portion of the total turnover
for Ajinomoto (80%) and F & N (figures not available), these
firms provide special discounts and gifts to their distributors
to earn their loyalty. Smooth relationship will also ensure
efficiency in delivering products to the end user. Control of
distribution channels is neither classified as low cost
leadership nor differentiation because it is considered a mutual
factor (Jacome et al., 2002).
 
Summary and Findings of Secondary Activities in the Value Chain
 
Firm Infrastructure Approach
 
All the firms have an information system network within their
organization. According to Laudon and Laudon (2000), an
information system could have a strategic impact if it helped
the firm provide products or services at a lower cost than
competitors or if it provided products and services at the same
cost as competitors but with greater value.
 
Information systems within these firms allowed them to make
speedy decisions. They noted that in the present business
environment, decisions need to be made very quickly or the firm
will lose its competitiveness. Ajinomoto and Nestle through the
feedback of their executives acknowledge these systems had
improved the overall industry performance of these firms in
terms of improved efficiency. F & N is currently looking at an
integrated information system to increase efficiency in
generating information for the management. It is currently
operating on the integrated JD Edwards ERP with Coca Cola
Information System. The integrated information system is
identified by Porter (1985) as one of the drivers to achieve
cost leadership. Hitt et al., (2001) noted firms with ERP
systems are capable of achieving the integrated cost leadership/
differentiation strategy because they promote operational
flexibility.
 
The respondents identified their firms as traditional top down
with a functional organizational structure and still retain the
middle management. Hitt et al., (2001) identified functional
structure with larger firms that are implementing one of the
business-level strategies. From the type of organization
structure and layers of managerial levels, these firms according
to the respondents are trying to maintain a certain level of
control on the activities within the firm. All of them have
financial modules of information system to control finance and
asset movements. Ajinomoto has tight budgetary control measures
to disallow any unnecessary wastage of money. This is typical in
firms that adopt the cost leadership strategy (Hitt et al.,
2001).
 
F & N (Coca-Cola) is focused towards producing and marketing
high quality products. This is echoed by the Fortune's most
admired corporation survey when they listed Coca Cola as a
corporation that ranked highest in quality (Hellriegel et al.,
1999). This is a reflection by the firm's emphasis on quality
management systems. Among the firms interviewed, only F & N
adopted the TQM principles. TQM is said to facilitate an
integrated low cost leadership and differentiation strategy
(Hitt et al., 2001). All the other firms also have quality
management systems, either ISO or in-house systems, i.e. the
Nestle Quality Management System and the Ajinomoto System for
Quality Assurance. According to the respondents, quality
management systems allow the firms to reduce cost through
efficient manufacturing system and provide quality consistency
in their products.
 
Procurement Approach
 
A similar procurement pattern is observed among the firms (refer
to Table 7). They emphasized procuring premium raw materials and
achieving consistency in the materials purchased. The number of
suppliers is kept to a minimum except for F & N that practises
an open policy for its packaging materials. Location of
suppliers is not an important criterion for all the firms as
long as consistency in inputs can be achieved. For example, F &
N obtained the Coca Cola concentrates from the USA, while Philip
Morris obtained the cigarette paper from exclusive global
suppliers in order to maintain the quality. A premium inputs
policy and bulk buying (economies of scale) also increase the
bargaining power of these firms with the suppliers (Porter,
1985). Philip Morris ensured the consistency of its key raw
material, tobacco leaves with a backward integration and the
paper quality with joint ventures. They want to ensure the final
product quality is not affected by poor inputs that will dent
their image as a premium product provider. Ajinomoto, while
emphasizing consistent quality, is continuously reducing costs
of inputs. However, the cost of inputs depends on demand and
supply, especially for commodities like starch. When the price
of starch is low in the market, Ajinomoto will take advantage of
buying in advance and in bulk (Porter, 1985).
 
All the respondents identify specifications as an important
factor in achieving consistency. If the suppliers are not able
to meet the firms' requirements, they will be removed from the
supplier chain. However, all firms monitor and have a good
working relations with their suppliers to ensure desired
standards and effective cost management. Nestle is one step
ahead - suppliers are treated as partners plus information and
technology is provided to them to ensure efficiency and
consistency in the supply chain. This approach is also taken by
Toyota (Hitt et al., 2001). In summary, these firms apply a
combination of both low cost and differentiation strategies when
procuring inputs. Policies to purchase premium inputs,
specifying requirements, good working relationship, and
monitoring of suppliers are characteristics of the
differentiation strategy, while bulk buying, fewer suppliers and
timing are characteristics of the cost leadership strategy.
 
Human Resource Management Approach
 
Table 8 shows the investigated firms that take both the
strategies approach, cost leadership and differentiation.
Marques et al. (2000) and Jacob et al. (2002) concluded that
human resource development is mutual for both strategy
approaches.
 
The respondents of Nestle and Ajinomoto recognized the need of
qualified people in manufacturing, research and development,
marketing and sales. As such, the following measures were taken
by the firms to address these requirements. The respondent from
F & N observed that most of the executives and managers in the
firm were capable of engaging in a constructive discussion, a
reflection of an intelligent workforce. Nestle, on the other
hand, has a management trainee programme that attracts young,
intelligent and aggressive graduates to be groomed as their
executives. All firms carry out extensive in-house and external
training, with Ajinomoto and Nestle having a regional training
centre. However, creativity is not encouraged in Philip Morris,
while others are working towards creating a creative workforce
especially in Nestle and F & N to allow them to improve
operations. All these firms are also good paymasters to attract
and retain good, dynamic and intelligent employees. Moreover,
those employees, who had successfully contributed to the well
being of the firm, with the exception of Philip Morris, are
rewarded with incentives to encourage such practices within the
firm. These firms trust employees will play a major role in
improving the firm's efficiency and brand image and are willing
to pay for quality workforce.
 
Almost 10 per cent of Philip Morris's employees are in the
managerial level, but it is only 5 per cent for Ajinomoto. In
the last four years, Ajinomoto had reduced almost 15 per cent of
employees at executive and managerial levels. This reduced the
overall growth in labour cost. Nestle with a 5-tier managerial
system is also working towards a leaner organization. The
respondent for F & N also identified a heavy management ratio
but was unable to provide any supporting data. With the
exception of F & N and Philip Morris, the others are working
towards reducing labour cost to remain competitive in the
post-AFTA era. In conclusion, the cost incurred in hiring an
expensive workforce is offset by a leaner organization because
these firms are investing in quality, not quantity.
 
Technology Development Approach
 
In summary, product development is recognized as an important
method in achieving differentiation (Marques et al., 2000;
Jacome et al., 2002; Hitt et al., 2001; Miller, 1998). With the
exception of Nestle and Ajinomoto, the other two firms do not
conduct any research and development in Malaysia. In Malaysia,
Nestle is the only firm that aggressively adopts the innovation
and research and development methods to improve its
manufacturing facilities and develop a new product mix or line
that is adaptable to the local culture. For example, recently it
launched omega enriched milk and Nestomalt in the market.
Ajinomoto continuously improves its biotechnology capability,
which is part of the operation line to increase yield and reduce
cost/unit. F &N is currently studying ways to implement an
integrated manufacturing system that will allow flexibility and
improved overall productivity. This is to contribute towards the
overall plant efficiency. As quoted by Helms et al. (1997),
Philip Morris too has successfully embarked on many product and
manufacturing innovations. The machine capacity is upgraded to
produce 8000 cigarettes/minute. However, all these development
and innovations are confined to the United States.
 
SUMMARY OF RESEARCH RESULTS
 
The findings reveal each firm will adopt the appropriate methods
in the generic categories that interchange between cost
leadership and differentiation or a combination of both
strategies throughout the value chain.
 
The summary in Table 9 reveals that although Ajinomoto is
inclined towards the cost leadership strategy, the sales and
marketing is strongly differentiated. Nestle is inclined towards
the integrated cost leadership/differentiation strategy, with
the handling of raw material, warehousing facilities and sales
and marketing strongly differentiated. F & N has a combination
of all three approaches in the value chain activities;
nevertheless, it is inclined towards the cost leadership with
production and innovation technology focused on efficiency.
Examining the Philip Morris value chain activities, it is a
combination of integrated and differentiated strategies although
the overall approach of the firm tilts towards the latter
emphasizing sales and marketing.
 
CONCLUSIONS
 
Based on the above analysis, the following conclusions may be
formed: a. Not a single firm adopts the cost leadership strategy
throughout the value chain categories either for primary or
supporting roles. Although in general Ajinomoto follows the cost
leadership strategy approach, the sales and marketing activities
are strongly differentiated. In other words, even though
Ajinomoto is focused on reducing the costs of procurement and
manufacturing, it is unwilling to sacrifice the "premium" image
of its products. Therefore, in reality Ajinomoto adopts both
approaches - cost leadership as well as differentiation
strategies.  b. Not a single firm exclusively adopts the
differentiation strategy throughout the value chain activities
either for primary or supporting roles. Although many categories
of the value chain related to Philip Morris are differentiated
i.e. marketing, sales, procurement and delivery, the operation,
manufacturing innovation and its infrastructure combines the
cost leadership and differentiation strategies. This firm needs
the differentiation strategy to create the perception of
uniqueness and high quality for its products through direct and
indirect advertisement and promotional activities, while
operating at a low cost in order to generate above average
returns.  c. Nestle, a successful food manufacturer that
generates above average returns, combines both strategies in
many primary and secondary categories activities. The cost
leadership approach is pursued in operations to reduce
production costs. This is achieved through economies of scale in
production and procurement, innovation in manufacturing, an
integrated information system that creates efficiency, and an
integrated warehousing facility that lowers the cost of
logistics operation. However, in sales and marketing, the
differentiation strategy is followed to create brand loyalty and
a healthy and premium product image.  d. F & N, another firm
that is very successful in the food industry, combines all the
generic strategies throughout its value chain. An integrated
manufacturing and information system was used to reduce the cost
of production and to create flexibility, while the sales and
marketing differentiation strategy strives to ensure the premium
product image is not eroded and to strengthen brand loyalty .
e. Firms adopt the combined approach based on their judgment
that the mutually exclusive approach may not lead to a
strengthening of their competitive ability. Therefore, a common
pattern is observed for all these successful firms: the
marketing and sales approach is highly differentiated to create
the premium image and to distinguish their products from the
competitors', while the operation cost is continuously lowered
through manufacturing innovation, integrated information systems
and economies of scale.  f. In terms of theoretical
implications, this study highlights the point that firms may
still be able to exhibit high performance even though they may
not be following either of the two generic strategies suggested
by Porter. Clearly, the theoretical framework suggested by
Porter is overly simplistic and may apply only to a limited
number of industries. In other industries such as food,
different contextual variables combine to require firms to adopt
strategies that contain elements of both differentiation and
cost leadership. The mutually exclusive generic strategy
approach as promulgated by Porter is not viable for business
firms in those industries. Instead, the integrated cost
leadership/differentiated strategic approach is the most
appropriate to generate above average returns.
 
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