Journal of Open Innovation: Technology, Market,and Complexity 9 (2023) 100039

Contents lists available at ScienceDirect

Journal of Open Innovation: Technology, Market,

and Complexity
journal homepage: www.sciencedirect.com/journal/joitmc

A business strategy, operational efficiency, ownership structure, and

manufacturing performance: The moderating role of market uncertainty and ]]
]]]]]]
]]

competition intensity and its implication on open innovation

Sofik Handoyoa, , Harry Suharmana, Erlane K. Ghanib, Slamet Soedarsonoc
⁎

a
Faculty of Economics and Business, Universitas Padjadjaran, Dipati Ukur 35, Bandung 40132, Indonesia
b
Faculty of Accountancy, Universiti Teknologi MARA, Cawangan Selangor, Kampus Puncak Alam 42300, Selangor, Malaysia
c
Indonesia Ministry of National Development Planning, Taman Suropati No.2, Jakarta 10310, Indonesia

A R T I C L E I N F O A B S T R A C T

Keywords: This study examines the direct effect of internal factors within a business organization, including business
Business strategy strategy, operational efficiency, and ownership structure, on manufacturing performance. It also analyzes how
Operational efficiency these internal factors influence manufacturing performance when interacting with external factors, namely
Ownership structure market uncertainty and competition intensity. The study compares firms with proactive and defensive strategies
Market uncertainty
regarding operational efficiency and manufacturing performance differences. It also compares manufacturing
Competition intensity
performance differences between firms with foreign and domestic ownership. The sample for this study includes
manufacturing firms listed on the Indonesia Stock Exchange between 2014 and 2021. The findings indicate that
business strategy, operational efficiency, and ownership structure positively and significantly affect manu-
facturing performance. Operational efficiency is higher in manufacturing when business competition increases.
Under intense business competition, manufacturing firms with foreign ownership tend to have more competitive
advantages than domestic ownership. Manufacturing firms that adopt proactive business strategies (prospectors
and analyzers) perform significantly better than those with defensive strategies (defenders and reactors).

1. Introduction et al., 2021). According to this typology, business strategy can be

The manufacturing industry constitutes a critical catalyst of eco-
nomic growth (ADB, 2019) and holds a pivotal position in the econo-
mies of developing countries (Barasa et al., 2019). Nevertheless, the
manufacturing industry's potential positive impact on national econo-
mies hinges on its performance. The manufacturing sector's satisfactory
performance can fuel job creation, gross national product growth, and
increased income, thereby contributing meaningfully to national eco-
nomic growth. As posited by organization theory, a company's perfor-
mance is heavily influenced by internal factors, such as business
strategy, operational efficiency, and ownership structure, and external
factors, such as market uncertainty and competition intensity. How-
ever, the full extent of how these factors interact and affect performance
has yet to be thoroughly explored. Therefore, investigating this issue is
essential as it can enhance our understanding of organization theory
and inform industry practices.
The Miles and Snow typology is one of the most widely-used
strategy classifications in the strategic management literature (Anwar
classified into four strategic orientations: prospectors, analyzers, re-
actors, and defenders (Grimmer et al., 2017). Prospectors and analyzers
are proactive strategies emphasizing exploring new market opportu-
nities through product innovation, while defenders and reactors are
defensive strategies relying on production efficiency (Dalwai and
Salehi, 2021). Miles and Snow's typology assumes that each type would
yield similar results (Anwar and Hasnu, 2017; Dalwai and Salehi,
2021). However, previous empirical findings have shown inconsistency
and contradict the theoretical assumptions. Some studies have shown
that proactive strategies are superior to defensive strategies
(Rudiawarni et al., 2022). Others suggest that defensive strategies are
better than proactive strategies (Dalwai and Salehi, 2021). This in-
consistency in research findings highlights the need for further study.
Efficiency in operations is an indispensable requirement for orga-
nizations to thrive in the intensely competitive business landscape
(Habib et al., 2022). Operational efficiency is critical for business or-
ganizations as it enables them to offer competitive prices to customers.
Research indicates that efficiency is vital in determining a firm's

⁎
Corresponding author.
E-mail address: sofik.handoyo@unpad.ac.id (S. Handoyo).

https://doi.org/10.1016/j.joitmc.2023.100039

Available online 12 April 2023

2199-8531/© 2023 The Author(s). Published by Elsevier Ltd on behalf of Prof JinHyo Joseph Yun. This is an open access article under the CC BY-NC-ND license
(http://creativecommons.org/licenses/by-nc-nd/4.0/).
S. Handoyo, H. Suharman, E.K. Ghani et al.
performance. Studies conducted by Mostafa (2010), Tran et al. (2020),
and Seth et al. (2020) have found that a firm's efficiency has a positive
impact on its performance. However, the research conducted by Phillips
et al. (2019), Tsolas (2014), and Shieh (2012) has yet to identify a
significant relationship. Therefore, further analysis using different
methods and locations is necessary to confirm these evaluations. Al-
though competition intensity is generally seen as having a negative
impact on a firm's performance, it can also drive firms to become more
efficient. In highly competitive markets, firms reduce operational costs
to maintain competitiveness. However, the relationship between com-
petition intensity, operational efficiency, and performance remains to
be determined. This study aims to fill this gap by examining the mod-
erating effect of competition intensity on the relationship between
operational efficiency and manufacturing performance.
The availability of resources is a crucial factor that can impact a firm's
performance. For publicly traded companies, the ownership structure (for-
eign or domestic) is closely linked to the resources available to the firm.
Variations in ownership structure may impact companies' operational
choices, which can, in turn, affect their financial performance (Sarpong-
Danquah et al., 2022). However, an ongoing debate persists regarding the
differing impact of ownership structure (foreign and domestic) on perfor-
mance. Therefore, examining the relationship between ownership structure
and firm performance is relevant. Although many studies have been con-
ducted on this topic, conflicting results are still commonly found (Musallam,
2020). Studies that compare the effects of foreign and domestic ownership
on firm performance have yet to provide clear conclusions. Some studies
have shown that foreign-owned firms perform better than domestically-
owned ones, while others have found the opposite to be true. The mixed
results and lack of clear understanding of the underlying reasons for these
effects make it necessary to conduct further research (Gu et al., 2019).
There still needs to be more conclusive and clear evidence regarding
the direct effect of internal factors, such as business strategy, opera-
tional efficiency, and ownership structure, on manufacturing perfor-
mance. This study specifically focuses on publicly traded manufacturing
firms, typically large-scale businesses. Although larger firms may have
more resources and strategies to overcome obstacles, they are also more
visible and vulnerable to failures in a business environment char-
acterized by intense competition and uncertainty. Therefore, it is es-
sential to empirically examine the interaction effect between internal
and external factors on manufacturing performance. This study sets
itself apart from previous research by adopting a novel approach known
as moderation analysis. Unlike conventional investigations that solely
focus on internal factors, this cutting-edge methodology explores the
impact of external variables as moderating factors while simultaneously
examining internal factors. By delving into both sides of the equation,
this study provides a more comprehensive and nuanced understanding
of the complex interplay between internal and external factors in
shaping outcomes.
The study has three primary objectives. Firstly, to investigate the
direct effect of internal factors, specifically business strategy, opera-
tional efficiency, and ownership structure, on manufacturing perfor-
mance. Secondly, to understand how external factors, including market
uncertainty and competition intensity, moderate the association be-
tween internal factors and manufacturing performance. Finally, the
study aims to compare the performance and operational efficiency of
manufacturing firms that implement proactive strategies, such as pro-
spector and analyzer, with those that employ defensive strategies, such
as defender and reactor. The study also examines performance varia-
tions between foreign-owned and domestically-owned firms.
2. Literature review and hypothesis development
2.1. Business strategy and performance
To succeed in a constantly changing market and environment,
businesses need to implement a strategic approach that prioritizes
2
Journal of Open Innovation: Technology, Market,and Complexity 9 (2023) 100039
resource conservation (Dalwai and Salehi, 2021). Studies suggest a
positive relationship exists between a firm's business strategy and per-
formance (Anwar and Hasnu, 2016). The Miles and Snow typology
posits that all four strategies (prospector, analyzer, defender, and re-
actor) have similar effects. However, empirical research findings in-
dicate significant differences in performance among these strategies.
James and Hatten (1994) argue that the effectiveness of these strategies
depends on structural and environmental variables. Market conditions,
such as the current state of the industry or the global economic en-
vironment, may also affect the effectiveness of the Miles and Snow
typology strategy. In this case, a proactive strategy (prospector and
analyzer) may be more beneficial in capitalizing on market opportu-
nities than a defensive one. Different strategy models may have varied
implications, and companies that adopt analyzer and prospector stra-
tegies tend to be in a better financial health (Dalwai and Salehi, 2021).
Firms with a proactive strategy tend to perform better than those with a
defensive strategy (defender and reactor) because they can take ad-
vantage of more opportunities available in the market (Pleshko and
Heiens, 2011). Firms committed to innovation, such as prospectors and
analyzers, tend to perform better than defensive firms, especially in
high levels of industrial competition (Rudiawarni et al., 2022). There-
fore, it can be hypothesized that:
Hypothesis 1. (H1). Business strategy is associated with manufacturing
performance.
Hypothesis 2. (H2). Manufacturing firms with proactive strategies
(prospector and analyzer) have different performances than those with
defensive strategies (reactor and defender).
2.2. Operational efficiency and performance
The effective utilization of resources is crucial for enhancing a
company's performance; therefore, management should prioritize this
aspect (Dalwai and Salehi, 2021). Efficient operations can lead to lower
production costs per unit, increased operating margins, and improved
profitability (Derouiche et al., 2020). Research suggests that firms with
high operational efficiency will likely perform better in today's com-
petitive markets (Lee et al., 2019). Inefficient use of resources can cause
poor performance in manufacturing industries (Habib et al., 2022). The
Miles and Snow typology categorizes a firm's strategy based on its
product and market orientation, with each type having a distinct ap-
proach. Defensive strategies (defender and reactor) prioritize opera-
tional efficiency to gain a competitive advantage (Anwar et al., 2021).
These firms focus on narrow product-market domains and compete in
the price of products (Ingram et al., 2016). In contrast, proactive stra-
tegies (prospector and analyzer) prioritize product innovation as a
critical aspect of building a competitive advantage (Ghofar and Islam,
2015) and target dynamic and growing markets (Daft et al., 2020).
Using the Miles and Snow typology framework, we can hypothesize
that:
Hypothesis 3. (H3). Operational efficiency is associated with
manufacturing performance.
Hypothesis 4. (H4). Manufacturing firms with defensive strategies
(defender and reactor) have different operational efficiency than those
with proactive strategies (prospector and analyzer).
2.3. Ownership structure and performance
The Resource-Based Theory (RBT) argues that a firm's structural
characteristics, such as its ownership structure and resource endow-
ments, play a critical role in shaping its performance (Amornkitvikai
and Harvie, 2011). Ownership structure, in particular, can significantly
influence a firm's decision-making and action policies (Chen and Hua
Tan, 2013). For instance, Mangoting et al. (2022) found that family
S. Handoyo, H. Suharman, E.K. Ghani et al. Journal of Open Innovation: Technology, Market,and Complexity 9 (2023) 100039

ownership moderates the relationship between tax risk and tax avoid- under uncertain market conditions.
ance, while Salehi et al. (2017) identified a trade-off relationship be-
Intense business competition is a situation where several companies
tween managerial ownership and debt policy. Different ownership
compete for market share. To remain competitive, firms must offer both
types create distinct organizational structures, cultures, and business
high-quality products and competitive prices. According to the efficient
processes (Chen and Hua Tan, 2013), exposing firms to various in-
structure hypothesis, competition intensity makes firms more efficient
stitutional constraints and competitive advantages (Ju and Zhao, 2009).
in their operations (Özgen Narcı et al., 2015). Intense competition in-
Research has shown that ownership structure is associated with firm
creases the likelihood that business organizations will strive to enable
efficiency (Habib et al., 2022) and can reduce the cost of equity (Faysal
firms to offer competitive prices, thereby improving the dynamic effi-
et al., 2020). Additionally, ownership structure has been found to
ciency of markets (Boone, 2001). It also compels firms to maximize
moderate the relationship between corporate governance and the fi-
their potential and minimize costs to maintain profitability (Guimaraes
nancial performance of manufacturing firms (Sarpong-Danquah et al.,
and Paranjape, 2019). Furthermore, firms in a highly competitive en-
2022). Foreign ownership can bring advantages such as technological
vironment are more likely to improve their operational efficiency to
skills, good management practices, financial resources, and innovation
compensate for decreased market share. Efficient firms have lower costs
(Mahajan et al., 2018), giving foreign-owned firms an edge over do-
and, therefore, higher profits (Casu and Girardone, 2009). Intense
mestically-owned companies in terms of knowledge, technology,
competition drives firms to minimize resources to maintain profitability
economies of scale, skilled human resources, operational efficiency, and
(Fernández-Kranz and Santaló, 2010). Building upon the information
productivity, ultimately leading to better performance (Ramstetter,
above, we put forward the following hypothesis:
1999; Fukuyama et al., 1999).
Chen et al. (2022) argue that government stakeholders (domestic Hypothesis 8. (H8). The relationship between operational efficiency
ownership) typically hold distinct concerns and interests, exhibiting and manufacturing performance is moderated by competition intensity.
low incentives to support organizational learning initiatives. They re- The effect of operational efficiency on manufacturing performance is
commend that business organizations adopt a high degree of foreign strengthened under intense business competition conditions.
ownership structure. The rationale behind this recommendation is that
A firm's performance is affected by various factors, including capital
foreign stakeholders, unlike their government counterparts, possess a
structure and business risks such as market competition (Mathur et al.,
greater capacity to introduce or allocate valuable resources and man-
2021). The impact of industry competition on the relationship between
agerial expertise to the business organization and are more motivated
performance and ownership type may vary (Ju and Zhao, 2009).
to advance the double-loop learning process. Based on the description
Ahmed and Afza (2019) argue that the effect of capital structure on a
mentioned above, we propose the following hypotheses:
firm's performance depends on the level of market competition. The
Hypothesis 5. (H5). The ownership structure is associated with intensity of industry competition can impact resource needs and ulti-
manufacturing performance. mately affect firm performance. In highly competitive environments,
firms without adequate resources may miss investment opportunities,
Hypothesis 6. (H6). Manufacturing firms majority-owned by foreign
and slack resources may negatively impact firm performance (Ju and
investors have different performances than those majority-owned by
Zhao, 2009). Under high market competition, only firms with sufficient
domestic investors.
resources can engage in research and development, product innovation,
and promotions. Firms with foreign ownership possess the potential to
2.4. The moderating role of market uncertainty and competition intensity assist business organizations in consolidating greater resources and
expertise (Chen et al., 2022), providing them with an advantage over
In both strategic management and contingency theory, it is widely their domestic counterparts in highly competitive environments. Given
acknowledged that a singular strategy cannot be universally effective in the information presented above, we suggest the following hypothesis:
all circumstances (Helmig et al., 2014). This notion highlights the im- Fig. 1.
portance of considering various situational factors in developing an
Hypothesis 9. (H9). The relationship between ownership structure and
appropriate strategy for a given situation. The fit between structural
manufacturing performance is moderated by competition intensity. The
and environmental factors determines the success of a business strategy
effect of ownership structure on manufacturing performance is
(Aljuhmani et al., 2021). Dalwai and Salehi (2021) argue that differ-
strengthened under intense business competition conditions.
ences such as the environment are responsible for the variance observed
in the performances of strategic types. The adoption of a suitable
strategic approach is essential for firms to enhance their organizational
3. Methodology
performance, and any unsuitable business strategy may result in fi-
nancial distress (Dalwai and Salehi, 2021).
3.1. Variable measurement − business strategy
Studies have found that a firm's performance is strongly linked to
the alignment of contextual, structural, and strategic factors (Olson
This study employs Miles and Snow's typology strategy, which in-
et al., 2005). In complex and turbulent environments, firms require
cludes four types of organizations: prospector, analyzer, defender, and
more complex structures and strategies to adapt (Helmig et al., 2014).
reactor. A composite measure is used to assign firms to different Miles
Superior performance can only be achieved when a firm's level of un-
and Snow typology strategies. Following the works of Bentley et al.
certainty is matched by its level of flexibility (Pagell and Krause, 1999).
(2013) and Higgins et al. (2015), business strategy is measured using
During periods of uncertainty, firms must be able to adapt to changes in
five ratios: (1) R&D to sales, (2) marketing expenditures to sales, (3)
the business environment swiftly (Burton et al., 2002). Business
property, plant, and equipment (PPE) to total assets, (4) change in total
strategy success varies across industry contexts and environmental
sales, and (5) employees to sales.
conditions. In an unfavorable business environment, such as high
The five ratios are ranked by forming quartiles to construct the
market uncertainty, the effectiveness of the business strategy on man-
composite measure. Those in the highest quartile are given a score of 4,
ufacturing performance may decline. Based on the information pre-
those in the next quartile are given a score of 3, and so on. Those in the
sented above, we hereby put forward the following hypothesis:
lowest quartile are given a score of 0. The scores across the five ratios
Hypothesis 7. (H7). The relationship between business strategy and are then added up, with a maximum score of 20 and a minimum score
manufacturing performance is moderated by market uncertainty. The of 0. Higher composite scores represent a proactive strategy, while
effect of business strategy on manufacturing performance is weakened lower scores represent a defensive strategy (Habib and Hasan, 2017).

3
S. Handoyo, H. Suharman, E.K. Ghani et al.
Fig. 1. Research Model.
The strategic orientation is then classified into proactive or defensive
types using a parameter following the previous works of Cohen et al.
(2014). The scoring system for the business strategy typology and the
scaling of the data are presented in Table 1.
3.2. Variable measurement − operational efficiency
Operational efficiency is measured by evaluating the manufacturing
activities that convert inputs into outputs. Inputs are represented by the
cost of goods sold (Derouiche et al., 2020) and operating expenses
(Imhanzenobe, 2019), while outputs are represented by sales revenues
and operating profit (Arsad et al., 2018). The data envelopment analysis
(DEA) method is employed to calculate the efficiency score. In this
study, the constant return to scale (CRS) model, proposed by Charnes,
Cooper, and Rhodes (CCR), is applied using the super-efficiency ap-
proach. The DEA efficiency measurement systems (EMS) software is
used to transform inputs and outputs into efficiency scores. The effi-
ciency score ranges from 0 to unlimited, with a score below 1 con-
sidered inefficient and a score of 1 or above regarded as efficient.
3.3. Variable measurement − ownership structure
The ownership structure pertains to the dispersion of common stock
ownership amongst investors. In this regard, investors are classified
into two distinct groups, namely foreign and domestic. Foreign in-
vestors are those who have made capital investments in common stock
originating from a country outside their borders. On the other hand,
domestic investors are those who have invested in the stock within their
country of origin, and this group encompasses both private and
Table 1
Business strategy scoring.
Strategic Typology Range total Ordinal type
orientation composite index of data
score
Defensive Reactor ≥0 < 5 1
Defender ≥ 5 < 10 2
Proactive Analyser ≥ 10 < 15 3 n
Prospector ≥ 15 4 HHI =
4
Journal of Open Innovation: Technology, Market,and Complexity 9 (2023) 100039
government investors. The methodology and data used to measure the
ownership structure variable are outlined in Table 2.
3.4. Variable measurement − market uncertainty
Market uncertainty in this study is proxied using sales revenues'
coefficient of variation (CVR). This measurement model is adopted
from a previous study by Habib et al. (2011). Market uncertainty is
determined by analyzing eight years of financial data (2014–2021)
from sample firms. The average sales revenues of these firms are used as
a reference point to identify significant fluctuations in each period
compared to the eight-year average. The coefficient of variation of sales
revenues (CVR) is calculated as follows:
( SRi SR )2
8
k= 1 8
CVR(SRi) =
SR
Where,
CVR = coefficient of variation of revenues.
SRi = Firm's sales revenue at the period of observation "i".
¯ = Firm's average sales revenues for eight years.
SR
The Coefficient of Variation of Revenue (CVR) denotes the degree of
market uncertainty encountered by each company. A higher CVR value
signifies more significant variations in sales revenues, thereby in-
dicating higher market uncertainty. Conversely, a lower CVR value
indicates a lower degree of market uncertainty. It is crucial to note that
the CVR provides a valuable metric for assessing the level of volatility
within a given market and its potential impact on business operations.
3.5. Variable measurement − competition intensity
The competition intensity in this study refers to the extent of com-
petition among firms operating within a specific industry sub-sector. In
total, the study involves eighteen sub-sector of manufacturing firms. To
measure competition intensity, the Herfindahl-Hirschman Index (HHI)
is used as a proxy, following previous works by Chen et al. (2015) and
Holm and Ax (2020). The formula to calculate the HHI is as follows:
S2i
i= 1
S. Handoyo, H. Suharman, E.K. Ghani et al.
Table 2
Ownership structure measurement.
Ownership structure Description
Foreign ownership Listed manufacturing firms with a majority common stock held by foreign investors
Domestic Ownership Listed manufacturing firms with majority common stock held by domestic investors (private
and government)
Sales value of sample firm for eight years
Si =
sales valuefor all firms in one business sector for eight years
Where,
HHI = Herfindahl-Hirschman Index.
Si = Market share of the sample firm.
n = The number of sample firms in the market.
A high value of the Herfindahl-Hirschman Index (HHI) signifies a
considerable degree of market share concentration among firms, im-
plying limited competition within the industry. This suggests that a few
firms hold dominant positions in the market or that market share dis-
tribution is skewed. A high HHI score indicates a monopolistic market,
whereas a low HHI score indicates a highly competitive market. It is
essential to note that the HHI provides a useful tool for evaluating
market competitiveness and assessing the degree of market concentra-
tion.
3.6. Variable measurement − manufacturing performance
Manufacturing performance evaluation employs a financial proxy
indicator, specifically the Return on Assets (ROA). The ROA metric
assesses a company's performance by establishing a link between
profitability and total assets, thereby revealing the financial perfor-
mance and resource utilization efficiency in generating earnings (Saraç,
2019). Additional tests using different financial indicators are con-
ducted to ensure the reliability and robustness of the study results.
These other financial indicators include the Operating Profit Margin
(OPM), Net Profit Margin (NPM), and Return on Equity (ROE), which
are utilized in the robustness tests.
3.7. Control variables
The control variables included in the additional analysis are firm
size, firm age, industry sub-sector, and firm type. Firm size is measured
using the natural logarithm of total assets. Firm age pertains to the
number of years a company has been in operation, which is determined
from the inception of its establishment to the period under investiga-
tion. The industry sub-sector refers to classifications of manufacturing
firms based on the Indonesia Stock Exchange (IDX). Firm type refers to
the classification of manufacturing companies into two categories,
namely knowledge and technology-intensive (KTI) and non-KTI firms.
The categorization of KTI and non-KTI companies follows the frame-
work established by the US National Science Board.
3.8. Model analysis
3.8.1. Direct effect model analysis
The present study aims to investigate the factors that influence
manufacturing performance (MPER), with a focus on three independent
variables: business strategy (BSTRA), operational efficiency (OPEF),
and ownership structure (OWNSTR). To estimate the proposed model,
we employ a panel data regression analysis leveraging the advantages
of cross-sectional and time-series data. The model estimation is for-
mulated as follows:
MPERit = b0 + b1BSTRAit + b2OPEFit + b3OWNSTRit + eit
Journal of Open Innovation: Technology, Market,and Complexity 9 (2023) 100039
Type of data
Nominal,
foreign ownership is given a value of data
=2
Nominal,
domestic ownership is given a value of data
=1
To comprehensively understand the effects of firm characteristics on
the predictive Model 1, we introduce control variables that capture key
firm attributes. Specifically, we incorporate four control variables: firm
size (SIZE), firm age (AGE), firm sub-sector (SEC), and firm type
(TYPE). These control variables are essential in accounting for the po-
tential variations in the dependent variable attributed to the differences
in the firm's intrinsic characteristics. The estimation model after in-
cluding control variables is as follows:
MPERit = b0 + b1BSTRAit + b2OPEFit + b3OWNSTRit +b4SIZEit
+ b5AGEit + b6SECit + b7TYPEit + eit (2)
3.8.2. Moderating effect model analysis
This study investigates the interplay of moderating variables in
shaping firm performance. Specifically, we seek to unravel the dynamic
relationship between market uncertainty (MUNCER) and business
strategy and the interplay between competition intensity (COMIN) and
operational efficiency and ownership structure. For this analysis, we
employ a moderating regression analysis (MRA) with panel data to
estimate the proposed model. The moderating regression analysis
(MRA) is formulated as follows:
MPERit = b0 + b1BSTRAit + b2OPEFit + b3OWNSTRit + b4MUNCERit
+ b5COMINit + eit (3)
MPERit = b0 + b1BSTRAit + b2OPEFit + b3OWNSTRit + b4MUNCERit
+ b5COMINit + b6BSTRA*MUNCERit + b7OPEF*COMINit
+ b8OWNSTR*COMINit + eit (4)
To fully understand the influence of moderating variables on the
relationship between independent and dependent variables, we employ
two separate models in this study: Model 3 and Model 4. While Model 3
is an analysis model that incorporates moderating variables without
any interaction effects, Model 4 takes into account the interaction be-
tween independent and moderating variables. Our primary objective in
using these models is to determine whether including moderating
variables enhances or diminishes the relationship between the in-
dependent variables (business strategy, operational efficiency, and
ownership structure) and the dependent variable (manufacturing per-
formance). Specifically, we aim to examine the extent to which the
moderating variables modify the relationship between the independent
and dependent variables.
3.8.3. Comparative analysis
To investigate the differences in performance and operational effi-
ciency between two distinct groups, proactive strategy vs. defensive
strategy and foreign ownership vs. domestic ownership, we employ a
test for the difference between the two means. The choice of the sta-
tistical test utilized in this analysis is determined by the distribution of
the data and the equality of variances between the two groups being
compared. Since the data does not follow a normal distribution, we use
the Mann-Whitney U test. This non-parametric test is designed to
analyze the difference between the two means when the assumptions of
normality data are not met. It is beneficial when dealing with small
(1) sample sizes or when the data is heavily skewed or contains outliers.
5
S. Handoyo, H. Suharman, E.K. Ghani et al.
3.9. Sample and data
This study analyzes manufacturing firms listed on the Indonesia
Stock Exchange (IDX) from 2014 to 2021. The sample for this research
consists of 135 consecutive manufacturing firms registered on the
Indonesia Stock Exchange (IDX) during the aforementioned period. Out
of these 135 firms, 128 were considered suitable for inclusion in the
research due to their possession of complete annual reports, which
provided a total of 1024 data sets.
3.10. Assumption test
The assumptions test is conducted to ensure the validity of the
conclusions drawn. These assumptions are the requirements that must
be fulfilled before conducting the analysis, and violating them can
significantly impact the research's findings and interpretation of the
results. Two basic assumption tests conducted in this study are the
normality and multicollinearity tests.
The normality test determines whether the sample data has been
drawn from a population that follows a normal distribution. A normal
distribution is ideal for analysis using parametric and non-parametric
tests for non-normal data distributions. In contrast, non-normal data
requires specialized statistical tests tailored to non-normal data dis-
tributions, which may be less potent than their normal counterparts.
The multicollinearity test is employed to assess the presence of
multicollinearity in a multiple regression model. Multicollinearity can
occur when independent variables in the regression model are highly
correlated, leading to unreliable regression coefficients and incorrect
statistical inferences. Therefore, a multicollinearity test is necessary to
identify any high correlation among independent variables and ensure
the model's goodness of fit.
4. Results
4.1. Descriptive statistic
Table 3 presents descriptive statistics for each variable involved in
the study, excluding the ownership structure and type of industry as
they are represented as dummy variables. The study comprises a total
sample of 128 listed manufacturing firms and covers eight years from
2014 to 2021, resulting in a total data observation of 1024.
The business strategy variable is measured using a continuum scale
from 0 to 20. The mean value for business strategy measurement data is
8.856. If it is converted into Miles and Snow typology strategy, the
characteristics of sample firms fall into the defensive strategy category
(< 9 points). The standard deviation is 3.163, which is relatively low
(below the mean value). It has implications that the score of the busi-
ness strategy measurement for each sample firm is relatively homo-
geneous. Sample firms tend to adopt a similar business strategy, which
is a defensive strategy.
Operational efficiency is measured using a scale ranging from 0 to
unlimited, as the super efficiency method allows for scores above 100%.
The mean value for operational efficiency is 0.657 (65.7%). The
minimum efficiency score is 0.010 (1%), while the maximum is 1.820
Table 3
Descriptive Statistics.
Variables Observation
Business Strategy 1024
Operational Efficiency 1024
Manufacturing Performance 1024
Market Uncertainty 1024
Competition Intensity 1024
Firm Age 1024
Firm Size 1024
Journal of Open Innovation: Technology, Market,and Complexity 9 (2023) 100039
(182%). Firms with an operational efficiency score below 1 (one) are
considered inefficient, while those above 1 have super efficiency.
Referring to the mean value indicates that most sample firms are in-
efficient. The standard deviation of 0.147 (14.7%) is below the mean
value, indicating that the sample firms have relatively homogeneous
characteristics in terms of operational efficiency.
Manufacturing performance is measured using the Return on Assets
(ROA) indicator. The minimum value of ROA for sample firms is
− 0.950 (−95%), and the maximum value is 0.630 (63%). Since ROA
is calculated as net income divided by total assets, a negative score
indicates that the sample firms are experiencing financial losses. The
mean value of ROA for the sample firms is 0.060 (6%), and the standard
deviation is 0.112 (11.2%). The standard deviation of ROA for the
sample firms is relatively high (> mean value), indicating that the
sample firms have a spread-out ROA score from the mean value. It also
suggests that the sample firms have heterogeneous manufacturing
performance.
The market uncertainty variable is measured using the covariance of
sales revenues. A high covariance indicates a high fluctuation in sales
revenues. The sample firms have a minimum value of 0.030 (3%) and a
maximum value of 0.280 (28%) for the covariance of sales revenues.
The mean value of market uncertainty is 0.080 (8%), and the standard
deviation is 0.045 (4.5%). A standard deviation is relatively low
(< mean value) and implies that the sample firms have homogeneity in
terms of market uncertainty.
The competition intensity is measured using a market share con-
centration proxy. A high market concentration indicates low competi-
tion and vice versa. The maximum score for competition intensity is
10.000, and the minimum score is 1.712. The mean value of the com-
petition intensity score is 3.428, which indicates moderate competition
intensity. The standard deviation is 1.716, which is in the low category
(< mean value). It implies that the sample firms in this study have
relatively the same competition intensity (moderate competition in-
tensity).
Firm age refers to the maturity of manufacturing firms calculated
from the initial establishment until the investigation period
(2014 −2021). The oldest sample has a firm age of 116 (maximum).
Meanwhile, the youngest has a firm age of 5 (minimum). The mean
value of the firm's age is 40, and the standard deviation is 18. A stan-
dard deviation less than the mean value implies that the sample's
character is relatively the same age (homogeneity). The firm's size was
measured using the natural logarithm of total assets. The larger value of
the natural logarithm of total assets indicates the larger firm's size. The
maximum value of a firm's size is 27, and the minimum size is 18. The
mean value of the firm's size is 21, and the standard deviation is 1. Since
the standard deviation is approaching zero and less than the mean
value, it implies that the character of sample firms has homogeneity in
terms of firm size.
4.2. Normality data test
A normality test is a commonly used method to ascertain whether a
given sample of data conforms to a normal distribution. This test
evaluates whether most data points lie within one standard deviation of
Mean Std. Dev Min Max
8.856 3.163 3.000 19.000
0.657 0.147 0.010 1.820
0.060 0.112 -0.950 0.630
0.080 0.045 0.030 0.280
3.428 1.716 1.712 10.000
40.227 18.141 5.000 116.000
21.707 1.610 18.000 27.000
6
S. Handoyo, H. Suharman, E.K. Ghani et al.
Table 4
Normality data test.
Manufacturing Performance Business Strategy
Shapiro-Wilk 0.861 0.966
P-value of Shapiro-Wilk < 0.001 < 0.001
the mean. Determining the normality data is vital in selecting an ap-
propriate statistical method that best fits the data under investigation.
The output of the normality data test using the Shapiro-Wilk method is
presented in Table 4.
The findings of the normality data test, as presented in Table 4,
reveal that the variables, namely manufacturing performance, business
strategy, operational efficiency, market uncertainty, and competition
intensity, have a Shapiro-Wilk p-value of < 0.001. This result implies
that the data points representing these variables do not follow a normal
distribution. As a consequence, this poses significant implications for
the analysis methodology utilized. The data is unsuitable for certain
statistical methods, such as parametric tests, that assume normality.
This can affect the validity of results obtained from these methods and
lead to incorrect conclusions. Therefore, non-parametric methods or
analysis methods that require no normal distribution data are used in
this study.
4.3. Multicollinearity test
A multicollinearity test is conducted to identify whether there is a
strong correlation between independent variables in multiple regres-
sion analysis. High correlation among independent variables ( r > 0.8)
provides redundant information about the dependent variable, making
it difficult to determine the individual contribution of each independent
variable to the dependent variable. This can lead to incorrect conclu-
sions about the relationships between the independent and dependent
variables. The output of the multicollinearity test is presented in
Table 5.
It is common to use statistical measures such as the variance infla-
tion factor (VIF) or tolerance to detect multicollinearity. A predictor
variable with variance inflation factor (VIF) values above 5 (five) is
considered to have high multicollinearity. Meanwhile, using an in-
dicator of tolerance value, the predictor variable with a tolerance value
below 0.2 indicates high multicollinearity. The information shown in
Table 5 implies that all independent variables do not have high mul-
ticollinearity ( tolerance value > 0.2 and VIF value < 0.5). Therefore,
all independent variables in this study fulfill the requirement for mul-
tiple regression analysis.
4.4. Direct effect results
The study posits that business strategy, operational efficiency, and
ownership structure positively impact manufacturing performance. A
panel data regression is employed as the data combines time-series and
cross-sectional elements. Since the data is not normally distributed, this
study used Generalized Linear Model (GLM). Unlike the ordinary least
squares (OLS) linear model that requires normal distribution data, the
GLM framework allows for the dependent and independent variables to
Table 5
Multicollinearity test.
Predictor Variable Tolerance
Business Strategy 0.981
Operational Efficiency 0.992
Ownership Structure 0.991
Market Uncertainty 0.996
Competition Intensity 0.984
Journal of Open Innovation: Technology, Market,and Complexity 9 (2023) 100039
Operational Efficiency Market Uncertainty Competition Intensity
0.821 0.820 0.813
< 0.001 < 0.001 < 0.001
have a non-normal distribution, including binary, count, and con-
tinuous data. The results of the panel data regression are presented in
Table 6.
The results of the regression analysis conducted on the output from
Model 1 indicate that the probability of the business strategy variable is
0.000 (p < 0.001), providing evidence in support of the hypothesis
that a positive association exists between business strategy and manu-
facturing performance (H1). The variable operational efficiency also
demonstrates a probability of 0.0000 (p < 0.001), lending support to
the hypothesis that a positive relationship exists between operational
efficiency and manufacturing performance (H3). Lastly, the regression
output reveals that ownership structure exerts a significant impact on
manufacturing performance (p < 0.001), thus affirming the hypothesis
that a positive association exists between ownership structure and
manufacturing performance (H5).
In Model 2, the regression analysis considers several control vari-
ables for firm characteristics, including size, age, industry sub-sector,
and firm type. The results of the regression analysis conducted on the
output from Model 2 confirm the findings of Model 1, indicating that
both business strategy and operational efficiency positively influence
manufacturing performance (p < 0.001). However, the results of
Model 2 reveal that ownership structure does not significantly affect
manufacturing performance (p > 0.05). These findings suggest that
the positive impact of ownership structure on manufacturing perfor-
mance is influenced by firm characteristics, specifically firm size, firm
age, and industry sector (p < 0.001). Moreover, the analysis results
suggest that the classification of manufacturing firms as either knowl-
edge and technology-intensive (KTI) or non-KTI does not significantly
impact performance. The findings indicate that KTI firms do not de-
monstrate superior performance compared to non-KTI firms.
4.5. Moderating effect results
This study posits that the effectiveness of business strategy on
manufacturing performance would be affected by a contingency factor,
namely market uncertainty (Model 4). The output of the moderating
regression analysis (Table 7) indicates that the interaction between
business strategy and market uncertainty has a probability of 0.758
(p > 0.05). Therefore, the hypothesis that predicts the moderating role
of market uncertainty on the relationship between business strategy
and manufacturing performance is not supported (H7). It implies that
uncertain market conditions do not necessarily affect the effectiveness
of business strategy on manufacturing performance. Even though hy-
pothesis H7 is not supported, the estimated value indicates a negative
value (−0.007). It implies that market uncertainty decreases the ef-
fectiveness of business, however not at a substantial level.
Model 4 also explores the influence of competition intensity on the
relationship between operational efficiency and manufacturing
Tolerance Threshold VIF VIF
Threshold
0.200 1.020 5.000
0.200 1.008 5.000
0.200 1.009 5.000
0.200 1.004 5.000
0.200 1.016 5.000
7
S. Handoyo, H. Suharman, E.K. Ghani et al. Journal of Open Innovation: Technology, Market,and Complexity 9 (2023) 100039

Table 6
Panel data regression output – The direct effect.

Method Generalized Linear Model (GLM)

Dependent variable Manufacturing performance (ROA)

Model Model 1 Model 2

(without control variable) (with control variable)

Independent variable Estimate P-value Estimate P-value

Business strategy (BSTRA) 0.008 0.000 0.007 0.000
Operational efficiency (OPEF) 0.470 0.000 0.444 0.000
Ownership structure (OWNSTR) 0.018 0.000 0.002 0.693
Intercept -0.330 0.000 -0.561 0.000

Control variable
Firm size (SIZE) - - 0.009 0.000
Firm age (AGE) - - 0.001 0.000
Industry sector (SEC) - - 0.003 0.000
Firm type (TYPE) - - 0.009 0.146
Model summary
Deviance (−2 *log(likelihood) 7.496 6.416
Akaike Information Criterion (AIC) -2119.064 -2270.029
Bayesian Information Criterion (BIC) -2094.406 -2226.029
Degree of freedom (df) 1020 1016
Chi-Square (χ2) 5.423 6.503
P-value 0.000 0.000

Table 7
Panel data regression output – Moderating effect.

Method Generalized Linear Model (GLM)

Dependent variable Manufacturing performance (ROA)

Model Model 3 Model 4

(without interaction moderating variables) (with interaction moderating variables)

Independent variable (IV) Estimate P-value Estimate P-value

Business strategy (BSTRA) 0.008 0.000 0.009 0.000
Operational efficiency (OPEF) 0.468 0.000 -1.853 0.000
Ownership structure (OWNSTR) 0.017 0.002 -0.509 0.000
Intercept -0.496 0.000 1.159 0.000
Moderating Variable (MV)
Market uncertainty (MUNCER) -0.116 0.049 -0.011 0.955
Competition intensity (COMIN) 0.022 0.000 -0.250 0.000
Interaction between IV and MV
Business strategy*market uncertainty - - -0.007 0.758
Operational efficiency*competition intensity - - 0.288 0.000
Ownership structure*competition intensity - - 0.065 0.000
Model summary
Deviance (−2 *log(likelihood) 7.366 6.952
Akaike Information Criterion (AIC) -2133.061 -2186.214
Bayesian Information Criterion (BIC) -2098.541 -2136.899
Degree of freedom (df) 1018 1015
Chi-Square (χ2) 5.554 5.967
P-value 0.000 0.000

performance and finds that intense competition amplifies the effect of
operational efficiency on performance (p < 0.001). This supports hy-
pothesis H8, which posits that intense competition promotes opera-
tional efficiency and improves manufacturing performance. This sug-
gests intense competition motivates manufacturing firms to optimize
their operational costs, leading to better performance. It implies that
competition is not always associated with the bad condition for busi-
ness organization. On one side, competition may decrease market share.
However, on the other side, business organizations are forced to find a
way to maintain profitability. Efficient use of resources is one of the
approaches that is empirically proven in this study.
This study predicted that the influence of ownership structure on
manufacturing performance would be moderated by competition in-
tensity (Model 4). Intense competition is expected to increase the effect
of ownership structure on performance. The interaction between own-
ership structure and competition intensity has a probability of 0.000
(p < 0.001). Therefore, the hypothesis that states the moderating role
of competition intensity on the relationship between ownership struc-
ture and manufacturing performance is backed (hypothesis H9). Since
the estimated value is positive, it refers to foreign ownership. It implies
that under intense business competition, manufacturing firms with
majority ownership by foreign investors tend to have better competitive
advantages than their counterparts (manufacturing firms with majority
ownership by domestic investors).
4.6. Comparative results
This study uses the Mann-Whitney test for comparative analysis. The
Mann-Whitney test is a non-parametric statistical test used to compare
two independent groups on a continuous or ordinal outcome variable. It
is used when the assumptions of normality and equal variance are
violated or cannot be assumed. Meanwhile, quantitative measures of

8
S. Handoyo, H. Suharman, E.K. Ghani et al. Journal of Open Innovation: Technology, Market,and Complexity 9 (2023) 100039

Table 8
Mann-Whitney U Test.

Comparative Mann-Whitney U P-Value Effect Size

Performance difference: 93,131 0.000 -0.261

Proactive strategy Vs. defensive strategy
Operational efficiency difference: 131,082 0.270 0.041
Proactive strategy Vs. defensive strategy
Performance difference: 121,761 0.311 -0.037
Foreign ownership Vs. domestic ownership

the magnitude of the difference between two groups (effect size) em-
ployed Cohen's d method. The results of this analysis are presented in
Table 8. Additionally, Table 9 includes descriptive statistics as supple-
mentary analysis for the comparative analysis.
This study posits that there will be significant variations in perfor-
mance between two groups of firms classified as either defensive or
proactive. Hypothesis H2 suggests that firms employing a proactive
strategy will exhibit superior performance compared to firms using a
defensive strategy. The results of the comparative analysis (Table 8)
support this hypothesis by demonstrating a statistically significant dif-
ference in manufacturing performance between defensive and proactive
firms (p < 0.001). Group descriptive statistics (Table 9) also indicate
that proactive firms have a higher mean ROA value than defensive firms
(defensive = 0.043 and proactive = 0.082). This supports the hy-
pothesis statement H2. It implies that manufacturing firms that adopt a
market orientation ( proactive strategy) tend to have better perfor-
mance than manufacturing firms that focus on product orientation (
defensive strategy).
Hypothesis H4 posits that manufacturing firms utilizing a defensive
strategy have higher operational efficiency than those using a proactive
strategy. However, the results of the comparative analysis (Table 8)
indicate that there is no statistically significant difference in operational
efficiency between the two groups (p > 0.05). The mean value of the
efficiency score (Table 9) for defensive firms is slightly higher than that
for proactive firms (defensive = 0.663 and proactive = 0.649). This
evidence does not support the hypothesis that a defensive strategy leads
to superior operational efficiency compared to a proactive one; there-
fore, Hypothesis H4 is not supported. It implies that this research
finding is not in accordance with the conceptual framework of Miles
and Snow's strategic framework. According to Miles and Snow's strategy
framework, the defensive strategy focuses on production efficiency,
while the proactive strategy focuses on product innovation. Therefore,
defensive firms should be more efficient than proactive firms. Even
though the hypothesis is not supported, the statement that mentions
that proactive firms are more efficient than proactive firms is proven.
However, the efficiency difference between proactive and defensive
firms is not substantial (statistically insignificant).
Hypothesis H6 proposed that manufacturing firms with a foreign
ownership majority would perform better than those with a domestic
majority. The results of the comparative analysis (Table 8) show that
there is no statistically significant difference in performance between
foreign and domestic ownership (p > 0.005). Therefore, the statement
in hypothesis H6 is not supported by the data. However, the mean value
of manufacturing performance (Table 9) for foreign-owned manu-
facturing firms is slightly higher than domestic ownership (domestic =
0.054, foreign = 0.066). It implies that manufacturing firms with
majority ownership by foreign investors have better performance but
not on a substantial level. If we refer to analysis model 2 (with the firm's
characteristics as control variables), it shows that a positive effect of
ownership structure on manufacturing performance is determined by
firm characteristics such as firm size, firm age, and industry sector. In
other words, firms with foreign ownership are superior to domestic
ownership in terms of performance but contingent upon firm char-
acteristics.
4.7. Robustness test
The robustness test in this study is designed to examine consistency
findings in the direct effect model estimation (Model 1) by using the
different manufacturing performance indicators. Model 1 uses return
on assets (ROA) as a proxy for measuring manufacturing performance.
The finding indicates that business strategy, operational efficiency,
and ownership structure are positively and significantly associated
with manufacturing performance. In the robustness test, manu-
facturing performance is proxied with different indicators, namely
operating profit margin (OPM), net profit margin (NPM), and return
on equity (ROE). The output of the robustness test is presented in
Table 10.
The results in Table 10 suggest that operational efficiency is the only
consistent and robust predictor of performance. When measured using
different performance indicators (OPM, NPM, and ROE), operational
efficiency shows consistently positive and significant effects on manu-
facturing performance. In contrast, business strategy and ownership
structure failed to prove a significant effect on manufacturing perfor-
mance if measured using different financial indicators. No significant
statistical evidence is found when these variables are associated with
performance indicators OPM, NPM, and ROE, indicating that they are
inconsistent predictors of manufacturing performance in this study. It
implies that the most convincing approach for manufacturing firms to
improve performance is through operational efficiency. Business
strategy and ownership structure do have a significant effect on man-
ufacturing performance, but it is contingent upon variables such as firm
characteristics.

Table 9
Group descriptive statistics.

Variable Group N Mean Standard Standard Coefficient of variation

deviation error

Manufacturing performance Defensive strategy 613 0.043 0.127 0.005 2.949

Proactive strategy 411 0.082 0.111 0.005 1.354
Operational efficiency Defensive strategy 613 0.663 0.161 0.006 0.242
Proactive strategy 411 0.649 0.123 0.006 0.190
Manufacturing performance Domestic ownership 608 0.054 0.096 0.004 1.792
Foreign ownership 416 0.066 0.152 0.007 2.313

9
S. Handoyo, H. Suharman, E.K. Ghani et al.
Table 10
Robustness test.
Method Generalized Linear Model (GLM)
Dependent variable Manufacturing performance (OPM)
Independent variable Estimate P-value
Business strategy (BSTRA) 0.038 0.110
Operational efficiency (OPEF) 3.761 0.000
Ownership structure(OWNSTR) -0.149 0.324
Intercept -2.812 0.000
5. Discussion
5.1. Business strategy, operational efficiency, ownership structure, and
performance
Miles and Snow's typology of business strategies provides a frame-
work for understanding a firm’s strategic orientation. It classifies stra-
tegic orientation as production orientation (emphasizing efficiency)
and market orientation (emphasizing product innovation). Using Miles
and Snow's typology, the finding in this study indicates that business
strategy is positively and significantly associated with manufacturing
performance. Additionally, the finding in this study also shows that a
proactive strategy (analyzer or prospector) leads to better manu-
facturing performance than a defensive strategy (reactor or defender).
The findings are consistent with previous research such as by Maury
(2022), Aljuhmani et al. (2021), Pollard and Morales (2015), Zamani
et al. (2013), Rudiawarni et al. (2022), Ingram et al. (2016), Rose et al.
(2008) and Williams et al. (1995). It implies that in today's rapidly
changing business environment, manufacturers must prioritize product
innovation and stay attuned to market trends to maintain and improve
performance. A firm's ability to adapt to market changes and techno-
logical advancements will determine its future sustainability. Proactive
strategies allow manufacturers to capitalize on market opportunities,
whereas defensive strategies hinder the ability to take advantage of
these opportunities.
Although the findings in this study are largely consistent with pre-
vious research, contradictory results still exist. For example, a study by
Dalwai and Salehi (2021) found a negative relationship between busi-
ness strategy and firm performance, with defender-type strategies
showing better performance than proactive ones. This highlights the
continued relevance of researching the impact of business strategy on
firm performance, and future studies should confirm the current find-
ings. Djajadikerta and Trireksani (2012) argue that unique social values
in different countries can affect business and management practices,
potentially leading to different research results. Additionally, different
research methodologies can lead to contradictory findings, as shown by
the robustness test in this study. While the study found a positive and
significant impact of business strategy on manufacturing performance
(ROA), different proxies (OPM, NPM, ROE) did not show a significant
relationship with business strategy. Furthermore, it is essential to
consider managerial characteristics when studying the association be-
tween business strategy and performance. A study by Salehi and
Moghadam (2019) found that management capability and over-
confidence were positively associated with firm performance and im-
proved performance. Therefore, future research should consider these
factors and potential cultural differences when studying the impact of
business strategy on firm performance.
Efficiency and productivity are crucial considerations for managers
in the manufacturing and service sectors (Yu and Ramanathan, 2009).
With intense competition in today's business environment, firms must
achieve operational excellence to remain sustainable (Abbasi and
Kaviani, 2016). In the manufacturing industry, operational efficiency is
a vital factor that allows companies to offer competitive prices and
10
Journal of Open Innovation: Technology, Market,and Complexity 9 (2023) 100039
Manufacturing performance (NPM) Manufacturing performance
(ROE)
Estimate P-value Estimate P-value
-4.404 0.382 0.038 0.110
-293.103 0.007 3.761 0.000
23.507 0.468 -0.149 0.324
237.478 0.007 -1158.197 0.000
improve their financial performance. Efficiency is essential when as-
sociated with resource scarcity (Derouiche et al., 2020). The nature of
manufacturing firms is more complex than other types, such as those in
the service sector. Manufacturing firms convert raw materials into
finished products, and their business process typically includes up-
stream production and downstream activities. It heavily depends on
production, distribution, and the supply chain for raw materials. In-
volvement with external parties, such as vendors in a supply chain, can
also impact a manufacturing firm's transaction costs. Therefore,
achieving operational efficiency is essential for success in the manu-
facturing industry. The finding in this study indicates that operational
efficiency positively and significantly affects manufacturing perfor-
mance. This finding supports the hypothesis and is consistent with
previous studies such as those by Hardcopf et al. (2021), Derouiche
et al. (2020), Lehmann et al. (2004), Greene and Segal (2004),
Imhanzenobe (2019), Fu et al. (2007), Baik et al. (2013), Mok et al.
(2007) and Vo and Vu (2017)). This finding suggests that operational
efficiency can enhance business organization performance by reducing
costs, optimizing resources, adapting to changes, and aligning with
environmental factors.
Resources are crucial in determining a firm's competitiveness in
highly competitive industries. Firms with solid financial foundations
are better equipped to survive and maintain their performance in the
face of intense competition. However, firms with insufficient resources
may need help to stay or maintain their performance. In a competitive
environment, firms with adequate resources may benefit from invest-
ment opportunities (Ju and Zhao, 2009). Therefore, lacking resources
can negatively impact a firm's performance in highly competitive in-
dustries. Only firms with sufficient resources can afford to conduct R&
D, innovate products, and promote them. Resources can be obtained
through ownership structures with domestic and foreign investors
within the firm. Research has shown that ownership structure is asso-
ciated with firm efficiency (Habib et al., 2022) and can reduce the cost
of equity (Faysal et al., 2020). Additionally, ownership structure has
been found to moderate the relationship between corporate governance
and the financial performance of manufacturing firms (Sarpong-
Danquah et al., 2022). Foreign ownership can bring advantages such as
technological skills, good management practices, financial resources,
and innovation (Mahajan et al., 2018), giving foreign-owned firms an
edge over domestically-owned companies in terms of knowledge,
technology, economies of scale, skilled human resources, operational
efficiency, and productivity, ultimately leading to better performance
(Ramstetter, 1999; Fukuyama et al., 1999). This study found that
ownership structure has a significant impact on manufacturing perfor-
mance. The finding is in line with previous studies such as those by
Lindemanis et al. (2019), Bamiatzi et al. (2017), Sarpong-Danquah
et al. (2022), Gu et al. (2019), and Duong et al. (2021).
5.2. Market uncertainty and competition intensity
In today's globalized and competitive business environment, firms
face intense competition from domestic and multinational companies.
To gain a competitive advantage, companies must be able to offer high-
S. Handoyo, H. Suharman, E.K. Ghani et al.
quality products at low prices. Efficiency and cost-effective production
enable firms to offer competitive pricing (Burton et al., 2002). Research
has shown a strong correlation between operational efficiency and
manufacturing performance. From a management and accounting per-
spective, a firm's performance is determined by sales revenue growth
and operating costs. Instead of focusing on direct competition to in-
crease market share, companies can maintain profitability by con-
centrating on internal operational efficiency during intense competi-
tion. The efficiency structure hypothesis posits that a firm's
performance is closely tied to its ability to effectively and efficiently
utilize its resources (Edwards et al., 2006). To increase profits, firms
must cost-effectively use their resources and offer competitive prices to
customers (Arbelo et al., 2021). The resource-based theory suggests that
resources and capabilities can serve as sources of competitive ad-
vantage. However, firms that do not efficiently utilize their resources in
operational processes will not gain a potential advantage over compe-
titors (Peteraf and Barney, 2003). This study confirms that competition
intensity affects firms' resource management strategies. In highly
competitive markets, firms are more likely to focus on reducing oper-
ating costs to maintain profitability.
In a highly competitive market, firms must focus on operational
efficiency to maintain their performance. This study suggests that
competition intensity moderates the relationship between operational
efficiency and manufacturing performance. This study's results align
with earlier research, including works by Boone (2001), Casu and
Girardone (2009), and Fernández-Kranz and Santaló (2010). As com-
petition intensifies, manufacturing firms are more likely to adopt an
inward-oriented strategy through operational efficiency to remain
competitive. Intense competition can also decrease sales revenues due
to market sharing with competitors. To offset this, firms often reduce
operational costs to maintain profitability. Efficiently utilizing re-
sources is crucial for a firm's sustainability in a highly competitive
market. Manufacturing firms operating in a highly competitive en-
vironment should prioritize operational efficiency. This includes im-
plementing lean production processes, reducing waste, and optimizing
resource utilization. Manufacturers must develop a competition-based
strategy emphasizing operational efficiency to improve their manu-
facturing performance. This can include investing in automation and
other advanced technologies, adopting new manufacturing processes,
and improving supply chain management. Firms must invest in training
and development programs to enhance their employees' skills and
knowledge to remain competitive and productive. This can improve
operational efficiency and enhance manufacturing performance.
A firm's performance is influenced by factors such as its capital
structure and business risks, including market competition (Mathur
et al., 2021). The intensity of industry competition can affect the need
for resources and the impact of resources on firm performance. This
study suggests that competition intensity moderates the relationship
between ownership structure and manufacturing performance. Under
intense business competition, manufacturing firms with majority own-
ership by foreign investors have an advantage over those with majority
ownership by domestic investors. Firms with majority ownership by
foreign investors, in general, have access to abundant resources, tech-
nology, and know-how. This implies that a firm's resources (ownership
structure) are crucial for maintaining performance under intense busi-
ness competition. This aligns with the resources-based theory (RBT)
that resources are critical for achieving a competitive advantage.
Therefore, under intense competition, particularly for firms with lim-
ited resources, it may be beneficial to optimize their resource utilization
to stay competitive.
Foreign-owned firms may benefit from their international experi-
ence and networks, which can enhance their ability to identify and
exploit market opportunities. Consequently, they may be better posi-
tioned to compete in highly competitive markets (Makino and Delios,
1996). On the other hand, domestic-owned firms may face certain
challenges in intensely competitive environments. They may lack the
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Journal of Open Innovation: Technology, Market,and Complexity 9 (2023) 100039
resources, networks, or experience to effectively compete with foreign-
owned counterparts. Furthermore, domestic firms may struggle to
adapt to rapid changes in the market, which could hinder their per-
formance in highly competitive settings. Since resources are vital,
especially in intense competition, strategic alliances with entities with
more sufficient resources are alternatives to maintain business con-
tinuity. However, it is important to consider that the competitive ad-
vantage of foreign ownership may not always be consistent across dif-
ferent industries, regions, or time periods. Factors such as industry-
specific characteristics, institutional contexts, and macroeconomic
conditions can influence the extent to which foreign ownership pro-
vides a competitive edge (Globerman et al., 2011; Meyer et al., 2011).
5.3. The relation between market uncertainty and open innovation
The relationship between market uncertainty and open innovation
has been a subject of interest for researchers and practitioners alike.
Open innovation involves the collaboration between different entities
to develop new ideas and technologies. Market uncertainty refers to the
unpredictability of market conditions and the potential risks and op-
portunities that arise from these conditions. Open innovation refers to a
collaborative approach to innovation, where firms collaborate with
external partners such as customers, suppliers, and other organizations
to co-create value. While open innovation has been shown to be ef-
fective in driving innovation, market uncertainty can significantly im-
pact the success of open innovation initiatives. Open innovation will
continue to be an important strategy for companies to innovate, create
value, and identify key areas for future research (West et al., 2014). The
findings of the study suggest that industry-specific factors, firm size,
and globalization are important determinants of the open innovation
adoption (Keupp and Gassmann, 2009).
Several studies have investigated the relationship between market
uncertainty and open innovation dynamics. For example, Chesbrough
and Bogers (2014) argue that firms need to engage in open innovation
to access diverse sources of knowledge and expertise to remain com-
petitive in uncertain markets. Firms must look beyond their own in-
ternal R&D departments to create and commercialize new technologies
and instead embrace open innovation by partnering with external
sources such as customers, suppliers, and universities (Chesbrough,
2003). Similarly, Vanhaverbeke (2017) suggests that open innovation
can help firms better respond to market uncertainty by providing access
to diverse resources and knowledge. However, other studies suggest
that market uncertainty can also pose challenges to open innovation
initiatives. For example, Lichtenthaler and Lichtenthaler (2009) argue
market uncertainty can lead to a lack of trust between partners and a
reluctance to share information, which can impede the flow of knowl-
edge and reduce the effectiveness of open innovation. Similarly,
Dahlander and Gann (2010) suggest that firms may be less willing to
engage in open innovation in uncertain markets due to concerns about
losing control over the innovation process. Market uncertainties can
potentially affect the success of open innovation initiatives, as they
require firms to manage complex relationships and adapt to rapidly
changing market conditions (Laursen and Salter, 2006).
Despite these challenges, recent studies suggest that firms can suc-
cessfully leverage open innovation in uncertain markets by developing
effective collaboration mechanisms. For example, Laursen and Salter
(2006) find that firms that are more open to external sources of
knowledge tend to have higher innovation performance and suggest
that this is because open innovation provides access to diverse re-
sources and knowledge that can help firms respond to market un-
certainty. They emphasized the importance of developing strong part-
nerships and communication channels with external partners to
successfully manage open innovation. Lee et al. (2012) introduce the
concept of co-innovation, emphasizing the importance of collaboration
and co-creation among diverse stakeholders. They argue that con-
vergence economics, which refers to the convergence of multiple
S. Handoyo, H. Suharman, E.K. Ghani et al.
technologies and industries, can drive co-innovation. However, they
also acknowledge that market uncertainties can pose challenges for
organizations attempting to engage in co-innovation initiatives.
Tushman and O'Reilly (1996) introduce the concept of ambidextrous
organizations, which can balance both incremental (evolutionary) and
radical (revolutionary) innovation. They emphasize the importance of
organizational adaptability and flexibility to navigate market un-
certainties. They suggest that firms that can effectively manage the
tension between exploration and exploitation are more likely to succeed
in open innovation initiatives, even in the face of market uncertainties.
Bogers et al. (2018) provide a comprehensive overview of open in-
novation, summarizing its evolution, research trends, best practices,
and policy implications. It highlights the importance of understanding
the influence of market uncertainty on open innovation initiatives and
the role of government policies in fostering innovation ecosystems.
The intricate relationship between market uncertainty and open
innovation presents both opportunities and challenges for organiza-
tions. As market uncertainty escalates, the impetus for firms to adopt
open innovation strategies becomes increasingly apparent. By lever-
aging external knowledge sources and collaborations, organizations can
effectively manage risks and maintain a competitive edge in volatile
market conditions. Open innovation offers a pathway for organizations
to enhance their adaptive capacity and resilience in the face of market
uncertainties. This approach fosters collaboration, knowledge sharing,
and the co-creation of innovative solutions to address emerging chal-
lenges. Ultimately, success in navigating market uncertainties hinges on
an organization's ability to continuously learn, adapt, and forge stra-
tegic partnerships with external stakeholders. By harnessing the po-
tential of open innovation, organizations can effectively address market
uncertainties and foster sustainable growth.
6. Conclusion
6.1. Implication and suggestions
The research findings indicate that business strategy, operational
efficiency, and ownership structure are key determinants of manu-
facturing success. Operational efficiency appears to be particularly
important in driving manufacturing performance, with firms demon-
strating higher levels of efficiency in response to increased business
competition. This suggests that firms should prioritize improving their
operational efficiency to remain competitive in dynamic market en-
vironments. Ownership structure also appears to play a role in manu-
facturing success, with foreign-owned firms demonstrating a greater
ability to compete under intense business competition compared to
their domestically-owned counterparts. This highlights the potential
benefits of foreign investment in domestic manufacturing industries,
particularly in highly competitive market environments. Finally, the
study suggests that firms adopting proactive business strategies, such as
prospectors and analyzers, outperform those with more defensive
strategies, such as defenders and reactors. Overall, the findings suggest
that manufacturing firms can improve their performance by focusing on
operational efficiency, ownership structure (attracting foreign in-
vestors), and proactive business strategies. Doing so can enhance their
competitiveness and achieve sustained success in dynamic market en-
vironments.
The findings of the study regarding the relationship between Miles
and Snow's business strategy and manufacturing performance have
several implications. First, Manufacturing companies should focus on
developing proactive strategies such as the analyzer or prospector. This
may involve investing in research and development, anticipating
changes in the market and adapting accordingly, and seeking new
growth opportunities. Second, Manufacturing companies should avoid
becoming too defensive in their strategies. This may involve being re-
active to changes in the market rather than anticipating them, being too
risk-averse, and being slow to adapt to new opportunities. Third,
12
Journal of Open Innovation: Technology, Market,and Complexity 9 (2023) 100039
manufacturing companies should invest in market research to better
understand their customers, competitors, and the market as a whole.
This will help them anticipate changes and identify new opportunities
for growth. Fourth, manufacturing companies should foster a culture of
innovation and encourage employees to think creatively about new
products, processes, and strategies. This can help them stay ahead of the
competition and identify new opportunities for growth. Fifth, manu-
facturing companies should be agile and able to quickly adapt to
changes in the market. This may involve investing in flexible manu-
facturing processes, developing a supply chain that can quickly respond
to changes, and empowering employees to make decisions quickly.
The study's findings suggest that improving operational efficiency
can lead to higher sales revenues and profit margins for manufacturing
firms. To achieve this, manufacturing firms should consider im-
plementing lean manufacturing practices to eliminate waste, reduce
variability, and increase customer value. Lean manufacturing can also
improve the quality of manufacturing processes, enhance flexibility,
and increase responsiveness. In line with advanced information and
communication technology, manufacturing firms should adopt en-
terprise resource planning (ERP) systems to achieve operational effi-
ciency. ERP systems provide real-time visibility of business processes,
automate repetitive tasks, and optimize resource management. By im-
plementing ERP systems, manufacturing organizations can reduce
costs, improve productivity, and enhance customer satisfaction, gaining
a competitive advantage in today's global marketplace.
Research finding indicates that foreign ownership tends to have
greater competitive advantages over domestic ownership under intense
business competition condition. It has several practical implications
both for managers and policymakers. First, countries are suggested to
attract foreign investors to their manufacturing sector to gain sources of
competitive advantage. Governments may offer incentives such as tax
holidays, subsidies, or streamlined bureaucratic processes to attract
foreign investors. Second, domestic firms may consider partnering with
foreign investors to gain access to their technology, know-how, and
global networks. Joint ventures can provide domestic firms with the
necessary resources to compete with foreign-owned firms. Third, do-
mestic firms may need to focus on innovation to stay competitive. They
can do this by investing in research and development, adopting new
technologies, and collaborating with universities and research institu-
tions. Fourth, domestic firms may need to develop their human capital
to compete with foreign-owned firms. They can do this by offering
training programs, attracting skilled workers, and fostering a culture of
continuous learning. Fifth, countries may need to support their manu-
facturing firms in accessing global markets. This can be achieved
through trade agreements, export promotion programs, and other in-
itiatives that reduce trade barriers.
6.2. Limits and future research agenda
Our research has several limitations that should be noted. First, it
relied solely on financial information from annual reports, and it is
recommended that future research combines secondary (financial ar-
chive data) and primary data (questionnaires or interviews). Second,
efficiency was only measured using the proportion of inputs and out-
puts related to operational costs and operating revenues. Future re-
search should also consider non-operational expenses and revenues.
Third, this study was conducted in an emerging country and involved
listed manufacturing firms only, so the findings cannot be generalized
to other industries or different economic conditions. Further research
that includes comparisons with advanced economies and a more diverse
sample of firms is needed for a more comprehensive understanding.
Fourth,
further research could explore the mechanisms through which for-
eign ownership confers an advantage over domestic ownership and
examine the boundary conditions under which this relationship holds.
Fifth, it is essential for future research to further explore the nuances of
S. Handoyo, H. Suharman, E.K. Ghani et al.
the relationship and identify best practices for implementing open in-
novation strategies in the context of fluctuating market conditions.
Lastly, there are contradictory findings about the theoretical basis, such
as the effectiveness of business strategy not being affected by market
uncertainty. Therefore, additional future studies are needed to confirm
the findings of this study.
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