INTRODUCTION
The Global
Retail Development Index (GRDI) ranked Indonesia as the 15th developing country
for retail investment purposes, where in the previous year Indonesia was ranked
19.
The
Indonesian retail market is still considered attractive for foreign investors,
especially global ones. This is evidenced by the continued entry of global
retailers starting in 2014 such as Courts Asia (Singapore), Parkson Group
(Malaysia), Central Department Store (Thailand), and IKEA (Sweden).
Many global
and national retail companies are aggressively investing and expanding in
various formats of modern retail businesses, such as hypermarkets, supermarkets
and minimarkets. in the 2012-2014 period, the minimarket format experienced
annual significant growth compared totraditional
shops, supermarkets, and hypermarkets (Pearce & Robinson, 2013). The
minimarket format experienced the most rapid growth and caused various changes
in the retail industry environment, which became a phenomenon in the
competitive strength of the retail industry in Indonesia and impacted business
performance in addition to competition between companies.
The
minimarket network is experiencing pressures in the continuity of its business,
such as: the emergence of various new arrivals, both local and global retailers,
negative accusations from various circles that the minimarket network has
killed traditional retail traders, and the increasingly has limited scope for
business expansion related to regulations and problems licensing.
The
minimarket network business competition in Indonesia is very tight. Its market
share of minimarket networks in Indonesia is currently dominated by the two
largest minimarket network companies named Indomaret
and Alfamart, in which each of them which controls a
market share of over 43%. The dominance of these two largest minimarket
networks is often found to be closely located and even side by side, in which
they are offering a variety of attractive services and promotional programs.
The growth in minimarket network sales is thought to have resulted from the
expansion of the opening of new outlets, but their business performance and
outlets sales are believed to decline in line with the increasing level of
competition around the outlets.
Along with
the level of competition that has a negative effect on sales, there has been an
increase in operational costs including in provincial/city/regency minimum
wages (UMR, Upah Minimum Regional), electricity costs, shop/land rental fees,
licensing fees, transportation costs, and etc. This situation caused the
profitability of the minimarkets per-store business to decrease compared to
previous years.
This fact
shows the problem that the business performance of minimarket chain in Indonesia is
not yet optimal. Referring to the above business competition conditions, the
low performance of minimarket network business in Indonesia, allegedly caused
by its lack ability to design cost leadership strategy. A superior competitive
strategy is an effort creating sustainable competitive advantage through low cost
strategies, speed-based strategies, and differentiation strategies (Prasad, 2011). The
phenomenon shows that the products offered so far tend to not differ from the
selling price of the products offered by competitors. On the other hand the products offered to customers both in terms of
product quantity and product quality, do not seem to differ much from products offered
by competitors.
In addition,
the minimarket network management has not been able to effectively develop
unique capabilities. The company's unique capabilities are developed from three
types of resources: tangible resources, intangible resources and organizational
capabilities [2]. In the retail business, location is the most important
tangible assets. Mistakes in determining the location will have a negative
impact on further business continuity.
Minimarket
network companies that will continue to develop the expansion of outlets will
face difficulty in buying property assets in the form of shop houses or land as
it requires huge large capital to develop the minimarket network. Undeniably,
it will be difficult to do an exit strategy by closing the store and then
selling it when the minimarket business performance in an area begins to
decline.
Minimarket
chain companies develop a network of outlets with a location rental system
(shop or land) and a franchise system. After surveying the location to an area
and determining the exact location, the minimarket company will conduct a lease
process with the landlord. The leasing process is carried out by negotiation
and often scrambles to bargain with the main competitors.
Under these
conditions the landlord has a bargaining position that benefits greatly by
installing the highest rental fee. Such conditions often lead to unethical and
dishonorable business practices, such as marking up rental fees, unilateral
cancellations, etc. In the end this condition resulted in a very high cost of
doing business with the surge in location rental fees. For this reason, a
careful break event point and feasibility study analysis is needed before
determining the right location and winning the negotiation of the location rental
fee.
In addition,
minimarket network companies face major issues related to government
regulations. The management must inevitably have to adapt the licensing process
and continue to observe and deal with government regulations. They must be
prepared to adapt all formal and non-formal provisions by coordinating
effectively with the local government in the licensing process associated
with opening a minimarket, in which requireshigh
costs and the value is never certain.
Considering
this issue, this study aims at examining the effect of government regulation
and distinctive capability on the cost of leadership strategy and its
implications on the business performance of minimarket chains in Indonesia.
This research is based on empirical gap, not based on theoretical gap. The
variables of distinctive
capability and cost leadership strategy are relevant to the
topic of sustainability and management innovation.
Literature Review
Government Regulation
The strength of industrial competition includes the
bargaining power of buyers and suppliers who them take care of the process of
input and output through the process; the threat of new entrants, and the
threat of a replacement (David, David, &
David, 2017). Five broad categories of external forces,
namely: (1) economic power, (2) social, cultural, demographic, and
environmental forces, (3) political, government and legal forces, (4)
technological strength, and (5) competitive strength (Wheelen, Hunger,
Hoffman, & Bamford, 2017).
In relation to industry analysis, there are six
forces of industrial competition: the threat of new entrants, competition among
players in the industry, the bargaining power of buyers, the threat of product
or service substitution, and the bargaining power of suppliers. The sixth power
named the relative strength of other stakeholders includes various stakeholder
groups from the task environment, such as the government (if not explicitly
included in a group), the local community, creditors (if not included in the
supplier), trade associations, certain interest groups, associations (if not
included in suppliers), shareholders, and supplementary powers (Levy, 1982).
Distinctive Capability
To measure the resources owned by a company as
sources of strength or weakness is done by comparing the resources they have
today with the resources they have before; or by comparing resources owned by
major competitors and the industry in general. Resource competency as the main
source of uniqueness of a company can be created through physical assets (land,
equipment, and location); human resource assets (number of employees and
expertise), and organizational assets (culture and reputation) (Levy, 1982). In relation, a core competency is a capability
that a firm emphasizes and excels in doing while in pursuit of its overall
mission. Core competencies that differ from those found in competing firms
would be considered distinctive competencies [2].
In developing sustainable competitive advantage,
retail companies must have seven resources (sources of advantage): human
resources management, distribution and information systems, location, customer
loyalty, unique and information systems, vendor relations, customer service,
and unique merchandise (Berman, 2010).
In accordance with the minimarket chain analysis
unit, the distinctive capability variable in this study was measured by
physical assets, intangible assets, and organizational capabilities.
Cost Leadership Strategy
Competitive strategy is required as an effort to
create sustainable competitive advantage using product uniqueness and cost
leadership (Prasad, 2011). Related to the retail industry, business lessons from various world-class
retail companies in the United States, has further developed Porter's Competitive
Strategy theory: Differentiation-Based Strategy, Cost-Based Strategy
(Differentiation-Based Strategy), and Value-Based Strategy. Cost-Based Strategy
(Cost-Based Strategy) consists of: Bargaining-Based Strategy, increasing
efficiency, and trade-offs between lower costs to potentially declining sales
and customer satisfaction (Best, 2009).
Based on the above concept, the variable cost
leadership strategy in this study was measured by bargaining power-based
strategy, efficiency, and trade off dimensions
Business Performance
Business performance can be measure from the aspects
of profitability, sales, and market share (Levy, 1982). Business performance is the output or the
result of the implementation of all activities related to business activities,
and also the indicator of business performance is sales growth and
profitability (Tuma, J. M., &
Pratt, J. M. (1982). Clinical child psychology practice and training: A survey.
\ldots of Clinical Child & Adolescent Psychology, 137(August 2012) et al.,
2002). Business performance indicators is seen from the
marketing aspect and through the company's financial performance. Measurement
of business performance through marketing performance done by analyzing sales,
market growth, and market share. Financial performance perspectives are
measured using: (1) return on investment (ROI), (2) revenue mix, (3) asset
utilization (measured by asset turnover), and (4) significant cost reduction (Alasadi & Al
Sabbagh, 2015). In addition,
sales also used to measure
business performance (Krapez, Skerlavaj,
& Groznik, 2012).
Referring to the concept of business performance
above, the variable performance of minimarket network business in Indonesia was
measured by sales volume, profitability, and market share dimensions.
Hypothesis Testing
Based on the background situation in Slovenia, it
was concluded that to achieve long-term success must be based or focus also on
several factors such as: corporate culture, values, and reward systems, state
legislation, taxation systems, bureaucratic buffering, opportunities funding
(partnership with banks, bank guarantees, venture capital, etc.). The strength
of industrial competition shapes organizational resources and competitive
strategies (Narula &
Upadhyay, 2010). Meanwhile, competitive forces affect industries
and companies and illustrate how domestic companies must reorient strategies to
overcome environmental turbulence created by regulations, market forces and
competitive forces (Saaty & Qureshi,
2011). Companies in the retail sector in Saudi Arabia
could improve their performance by emphasizing excellent human resource
practices (Kurt & Zehir,
2016).
The relationship between cost leadership strategy,
total quality management applications and firms’ financial performance with
literature review and empirical analysis. There were 449 questionnaires
administered to the managers of 142 big firms (Opara, 2019). Besides,
application of cost leadership strategy led to reduced costs of operation,
increased production outputs and profitability (Tuma, J. M., &
Pratt, J. M. (1982). Clinical child psychology practice and training: A survey.
\ldots of Clinical Child & Adolescent Psychology, 137(August 2012) et al.,
2002).
Based on the results of previous studies, the conceptual
model of research is arranged as follows:
Figure 1
Conceptual Model
The following hypotheses are arranged based on the above conceptual
model:
H1: Government regulation influences the cost leadership strategy
H2 : Distinctive capability influences the cost leadership strategy
H3 : Government regulation influences the business performance
H4 : Distinctive capability influences the business performance
H5 : Cost leadership strategy influences the business performance
METHOD
The
study employs explanatory survey, in which its objective is to test the truth
of a hypothesis that has been conducted through data collection in the
field. The data is analyzed
quantitatively because it is based on primary data It used minimarket network
in Indonesia as the unit of the analysis. Specifically, this network had a
business brand consisting specific segmentation, positioning and targeting in
its own market. This was done by distributing centralized management outlets in
various regions in Indonesia with headquarters and branch offices in various
cities/provinces/countries in Indonesia as the representative of the central
office. The time horizon in this study
is a cross-section/shot. Transverse pieces/one taking in which a sample of
respondents is drawn from the target population and information is obtained
from this sample once (Nunnally, 1994).
The
population of this study is a combination of all elements of 20 minimarket
network company in Indonesia having the same set of characteristics. The coverage of samples under 100 respondents is
very valid to use PLS, so that the
analysis design used in this study is
Partial Least Square to facilitate the relationship between latent variables.
RESULT AND DISCUSSION
A. Analysis of Measurement
Model (Outer Model)
Validity and reliability
tests were employed to measure the latent variables and the indicators in
measuring the dimension that is constructed.
Cronbachs Alpha's value was used to measure
the reliability of dimension in measuring variables. The value of Cronbachs
Alpha bigger than 0.70
indicates that the dimensions and indicators is reliable in
measuring variables. Composite reliability and Cronbachs
Alpha > 0.70, show that all of variables in the model estimated fulfill the
criteria of discriminant validity (Chin, 1998). Table
2 presents the result of outer model for each dimension on indicators.
Table 1
Measurement Model (Outer
Model)
|
Variable-Dimension
|
Indicator-Dimension
|
l
|
SE (l)
|
t-value
|
|
Business
Performance
|
BP1 <- Business Performance
|
0.946
|
0.010
|
92.753
|
|
BP2 <- Business Performance
|
0,893
|
0.024
|
37.054
|
|
BP3 <- Business Performance
|
0.686
|
0.056
|
12.344
|
|
Cost
Leadership Strategy
|
CLS1 <- Cost Leadership Strategy
|
0.718
|
0.065
|
11.007
|
|
CLS2 <- Cost Leadership Strategy
|
0.793
|
0.035
|
22.548
|
|
CLS3 <- Cost Leadership Strategy
|
0.777
|
0.050
|
15.648
|
|
Distinctive
Capability
|
DC1 <- Tangible Asset
|
0.615
|
0.329
|
1.867
|
|
DC2 <- Tangible Asset
|
0.785
|
0.079
|
9.921
|
|
DC3 <- Tangible Asset
|
0.650
|
0.320
|
2.032
|
|
DC4 <- Intangible Asset
|
0.826
|
0.046
|
17.820
|
|
DC5 <- Intangible Asset
|
0.518
|
0.261
|
1.985
|
|
DC6 <- Intangible Asset
|
0.588
|
0.118
|
5.000
|
|
DC7 <- Capability Org
|
0.593
|
0.276
|
2.151
|
|
DC8 <- Capability Org
|
0.739
|
0.078
|
9.427
|
|
DC9 <- Capability Org
|
0.741
|
0.092
|
8.100
|
|
Government
Regulation
|
Reg1 <- government regulation
|
0.767
|
0.086
|
8.881
|
|
Reg2 <- government regulation
|
0.747
|
0.055
|
13.663
|
|
Reg3 <- government regulation
|
0.648
|
0.071
|
9.099
|
Cronbachs Alpha > 0.7
and Composite Reliability > 0.7 showed that variables have reliable
indicators and variables have good reliability.
Loading factor ( obtained should be able to explain the relationship
between latent variablesand indicators.
The outer model showed that the
indicators are valid which t -value > 2.10 (t table at α = 0.05). The result of measurement model of latent
variables on their indicators shows validity in measuring latent variables
B. Structural Model (Inner
Model) Analysis
The results of
information collection are used in the design of the interior model of the
dental clinic as an alternative to child anxiety management.
Table
2
Test
of Outer and Inner Model
|
Variable
|
Cronbachs
Alpha
|
Composite
Reliability
|
R Square
|
Q square
|
|
Business Performance
|
0.804
|
0.884
|
0.684
|
0.449
|
|
Cost Leadership
Strategy
|
0.751
|
0.807
|
0.612
|
0.322
|
|
Government Regulation
|
0.747
|
0.765
|
|
0.521
|
|
Distinctive Capability
|
0.739
|
0.806
|
|
0.365
|
R square value of Business
performance and cost leadership strategy was the strong criteria (> 0.33 =
moderate), and Q square values were in the large criteria, so it can be
concluded that the research model was supported by the empirical condition, or
in other words, the model was fit.
Figure 2. Complete Path
Diagram of Research Model
Based on the research
framework, then obtained a structural model:
Y =
0.364X1 + 0.460X2 + z 1
Z =
0.145X1 + 0.210X2 +0.537Y+ z 2
X1 = Government regulation
X2 = Distinctive Capability
Y = Cost Leadership Strategy
Z = Business Performance
z1 = Residual
C. Hypothesis Testing
Below is the result of hypothesis testing both
simultaneous and partially.
Table 3
Hypothesis Testing
|
No
|
Hypotheses
|
g
|
SE(g)
|
t value
|
R2
|
|
1
|
Government
Regulation -> Cost Leadership Strategy
|
0.364*
|
0.135
|
2.689
|
0.267
|
|
2
|
Distinctive
Capability -> Cost Leadership Strategy
|
0.460*
|
0.147
|
3.128
|
0.346
|
|
3
|
Government
Regulation -> Business Performance
|
0.145
|
0.109
|
1.325
|
0.045
|
|
4
|
Distinctive Capability
-> Business Performance
|
0.210*
|
0.076
|
2.772
|
0.068
|
|
5
|
Cost Leadership
Strategy -> Business Performance
|
0.537*
|
0.075
|
7.149
|
0.288
|
Table 3 presents that
partially, government regulation, and distinctive capability have influential
significantly to cost leadership strategy and business performance. Distinctive capability had a greater
influence on cost leadership strategy
(R2=34.6%). Then, the government
regulation had no significantly direct
influential to Business performance ( t value < 2.10).
Government regulation and
distinctive capability had significantly indirect effect to business
performance through cost leadership strategy, thus distinctive capability have
dominant effect (R2 =24.7%).
Figure 3
Research Findings
The results showed that
the right strategy of cost leadership was dominantly influenced by ownership of
distinctive capability (34.6%) and was supported by the extent to which
minimarket network companies were able to adapt aspects of government
regulation (26.7%). Furthermore, the cost leadership strategy could improve
business performance by 28.8%. Government regulation and distinctive strategy
were also able to directly improve business performance, but the effect was smaller
when compared to indirect effects through the cost leadership strategy.
Distinctive capability could improve business performance by 24.7% if through a
cost leadership strategy, but if it directly affects only 6.8%. Government
regulation was able to directly influence business performance by 4.5%, but if
it was through a cost leadership strategy, then the effect would be greater at
19.5%.
These findings indicated
that the business performance improvement of minimarket network companies was
based on the development of leadership strategy cost, in which the cost
leadership strategy was built on ownership of distinctive capability and
adaptation of government regulation.
These findings support the
results of study that shows cost
leadership strategy and total quality relationship [14]. Besides, this
findingis in line the finding of the research which revealed that the
application of the cost leadership strategy led to reduced operations cost,
increased production outputs and profitability [15].
This finding is also in
line with the results of research that the strength of industrial competition
shapes organizational resources and competitive strategies [11]. This finding
is in accordance with the reseaarch which found that competitive forces
affected industries and companies and illustrated how domestic companies must
reorient strategies to overcome environmental turbulence created by
regulations, market forces and competitive forces [12]. The results of this
study are also in accordance with the results of the study which found that
companies in the retail sector in Saudi Arabia could improve their performance
by emphasizing excellent human resource practices [13].
CONCLUSION
The findings indicate the hypothesis
support that government regulation influenced the cost leadership strategy,
distinctive capability influences the cost leadership strategy, government
regulation influences business performance, distinctive capability influences
business performance, and cost leadership strategy influenced business
performance.
It can be inferred that the dominant
cost leadership strategy was influenced by ownership of distinctive capability
and was supported by the extent to which minimarket network companies were able
to adapt aspects of government regulation. Cost leadership strategy had the
most influence in directly increasing business performance. Government regulation and distinctive
strategy were also able to directly improve business performance, but the
effect was smaller when compared to indirect effects through the cost
leadership strategy.
This study has implications for
minimarket chain company management efforts to improve business performance
rest on the development of a cost leadership strategy, which is built on
ownership of distinctive capability and adaptation of government
regulation. Cost leadership strategy is
suitable to be applied in this industry because of its hypercompetitive market
structure. In addition, government regulations have a significant impact on the
retail industry's strategy in Indonesia.
REFERENSI
Alasadi, Rami, & Al Sabbagh, Hicham. (2015). The role of training in
small business performance. International Journal of Information, Business
and Management, 7(1), 293.
Berman, Barry R. (2010). Competing in Tough Times: Business Lessons
from LL Bean, Trader Joe’s, Costco, and Other World-Class Retailers (Paperback).
FT Press.
Best, R. (2009). Market Base Management; Strategy for Growing Consumer
Value and Profitability. Pearson Education. Inc, New Jersey.
Chin, Wynne W. (1998). The partial least squares approach to structural
equation modeling. Modern Methods for Business Research, 295(2),
295–336.
David, Meredith E., David, Fred R., & David, Forest R. (2017). The
quantitative strategic planning matrix: a new marketing tool. Journal of
Strategic Marketing, 25(4), 342–352.
Krapez, Jana, Skerlavaj, Miha, & Groznik, Ales. (2012). Contextual
variables of open innovation paradigm in the business environment of Slovenian
companies. Economic and Business Review for Central and South-Eastern Europe,
14(1), 17.
Kurt, Ali, & Zehir, Cemal. (2016). The relationship between cost
leadership strategy, total quality management applications and financial
performance.
Levy, F. L. (1982). Calculating the thermal conductivity of meat and fish
in the freezing range. International Journal of Refrigeration, 5(3),
149–154.
Narula, Sapna A., & Upadhyay, K. M. (2010). Strategy in turbulent
environment: A case study of Indian domestic company. American Journal of
Economics and Business Administration, 2(2), 160.
Nunnally, Jum C. (1994). Psychometric theory 3E. Tata McGraw-hill
education.
Opara, Chika Glory. (2019). Deviations in popular Nigerian English syntax.
International Journal of Development and Management Review, 14(1),
193–207.
Pearce, John A., & Robinson, Richard Braden. (2013). Strategic
management: Planning for domestic & global competition.
McGraw-Hill/Irwin.
Prasad, Ajit. (2011). The impact of non-market forces on competitive
positioning: understanding global industry attractiveness through the eyes of
ME Porter. Journal of Management Research, 11(3), 131.
Saaty, Abdalelah S., & Qureshi, Mohammed Owais. (2011). An empirical
analysis of the human resource management activities in retail sector: A study
of Saudi Arabian companies. Interdisciplinary Journal of Research in
Business ISSN, 2046, 7141.
Tuma, J. M., & Pratt, J. M. (1982). Clinical child psychology practice
and training: A survey. \ldots of Clinical Child & Adolescent Psychology,
137(August 2012), 37–41. http://doi.org/10.1037/a0022390, Gobry, F. (1999).
{T}his is a title. {M}y Journal, 1, 120–130., Keshav, S. (2007). How to Read a
Paper. Work, 37(3), 83–84. http://doi.org/10.1145/1273445.1273458, et al.
(2002). Middlesex University Doctor of Professional Studies. Studies in
Higher Education.
Wheelen, Thomas L., Hunger, J. David, Hoffman, Alan N., & Bamford,
Charles E. (2017). Strategic management and business policy. pearson
Boston, MA.
.
The Effects of Government Regulation and Distinctive Capability on the Cost Leadership Strategy to Drive the Business Performance of
Minimarket Chain