Drivers of manufacturing performance in medium and large scale firms in Ethiopia (evidence from Addis Ababa and its periphery)

Abstract

Manufacturing performance measures the extent to which the manufacturing plant has built capabilities like low cost, high quality, delivery, and flexibility. The importance of identifying drivers of these capabilities has been underscored by many scholars although limited evidence exists so far regarding this issue. The available evidence is also primarily based on data obtained from manufacturing firms operating in developed and emerging economies and not from firms in developing economies. This study, therefore, bridges this gap by exploring key internal and external drivers of manufacturing performance taking evidence from the manufacturing sector of a developing economy - Ethiopia. A quant-emphasis mixed method approach was used along with cross-sectional survey design to gather data and answer the research questions in the study. The unit of analysis is the manufacturing plant, and hence primary data was collected using multidimensional questionnaires at plant level from 197 medium and large scale firms from Addis Ababa and its periphery. Secondary data was obtained from census reports, the country’s Growth and Transformation Plan (GTP), and report on the performance of the Ethiopian economy, which were analyzed qualitatively and the implications to manufacturing performance drawn in the study. A series of scale checks and analyses were made to test unidimensionality, reliability, and validity of measures and then structural equation modeling (SEM) was used to analyze hypothesized relationships. The main finding is that environmental dynamism significantly influences competitive priorities and firm’s strategic orientation, which in turn significantly influence manufacturing decisions. Structural and infrastructural manufacturing decisions eventually significantly influence manufacturing performance when firms place increased emphasis on quality or delivery. The competitive priorities also significantly influence external learning capability of the manufacturing plant, although the influence of strategic orientation on this variable was not significant even at the 0.1 level except in the delivery priority model. Both the competitive priorities and strategic orientation, however, play little role in guiding leadership practices of manufacturing managers. The study further indicates that government support directly influences manufacturing performance, though it does not significantly influence external learning capability. Based on the findings, it is suggested that manufacturing firms should give due attention to what is going on in their external environment and accordingly align their competitive priorities, strategic orientation, and investments in structural and infrastructural resources to enhance plant performance. They should exhaustively utilize the supports provided by government as well.