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ISSN: 2321-8819 (Online) 2348-7186 (Print) Impact Factor: 1.498 Vol. 7, Issue 10, October, 2019

The Mediating Role of Competitive Strategy on the Growth Strategies and Performance
of Manufacturing Based SMEs in North-West of Nigeria
Sidi Bello Alkasim1 and Shehu U. Bello2
1
Department of Marketing
Umaru Ali Shinkafi Polytechnic, Sokoto, Nigeria
2
Department of General Studies
Umaru Ali Shinkafi Polytechnic, Sokoto, Nigeria

Abstract which have impacted the most and are developing

The aim of this study is to examine the mediating effect of rapidly, are the manufacturing based SMEs.
differentiation strategy on the relationship between
growth level strategies, and firm performance. Data was In today global competitiveness the manufacturing
compiled from the manufacturing based SMEs operating industry is therefore the one with the tendency to
in the North-West region of Nigeria, using cross- help economies grow in terms of the enhancement
sectional research design. This study adopted cluster of their GDP and in terms of providing jobs.
sampling and randomly selected 476 respondents and However, this is provided that one of these
questionnaires were proportionately distributed and competitive strategies (cost leadership and
collected through personally administered method. PLS- differentiation strategy) is properly put to use.
SEM was used to test the hypotheses. The results found Combining the two strategies for any reason may
positive impact to both market penetration, market
development and product development on the SME
lead to confusion and pose strings of difficulties
performance. It is expected that market penetration, especially for developing economy like Nigeria,
market development and product development will where SMEs are vulnerable to the environment in
improve the competitive advantage and enhance which they operate, particularly, with regards to
performance of manufacturing based SMEs. The study whether to offer low cost strategy or differentiate
found that differentiation strategy empirically mediates their product and services. However,
the relationship between the strategic growth of notwithstanding the wide spread innovations the
manufacturing based SMEs and performance. Therefore, technological cutting edge and advancement in ICT
the findings of this study contribute to the literature and in emerging markets, the misconception of global
practice of SMEs owners-managers, policy makers, and
researcher with better understanding on the role of
competitiveness and international trade is now
differentiation strategy in mediating the relationship being taken seriously by governments of
between market penetration, market development and developing countries so much so that their
product development strategies and firm performance. economic plans now include considerations for the
The study also assessed the effect size, as well as the manufacturing sector.
predictive relevance. Finally, limitations and suggested
for further studies were represented. Consideration by governments in this regarded has
resulted in and provided the bases for high
Keywords competition, foreign direct investment and help
Firm performance, market penetration, market manufacturing sector become major source of job
development, product development, differentiation creation. This fact is evident as SMEs in high-
strategy. income nations are said to contribute 55% to Gross
Domestic Product (GDP) and responsible for 65%
1.1 Introduction
of employment, while those in middle-income
Currently, the most dominant forms of business in economies, account for 70% of GDP and 95% of
most economies of the world are the small and employment (NBS & SMEDAN, 2012). The case
medium enterprises (SMEs). These forms of is no less in low-income-countries where SMEs
business are now the most entrenched in most activities are also said to account for 60% of the
countries of the world for the simple reason that GDP and 70% of full employment.
they help to foster economic growth and are
However, currently the Nigerian SMEs contribute
avenues for the creation of jobs (United Nations
less than 5% to the GDP and 25% to the total
Industrial Development Organization) (UNIDO,
employment rate (Ahmed & Cornelius, 2014;
2016). Large corporations hitherto known for
Gbandi, & Amissah, 2014). This is so because
carrying out these roles have decimated and are
according to SMEDAN’s report (2012) about 70%
now end users of raw materials from these SMEs.
of SMEs lack proper strategic orientation and
However, SMEs are made of up many sectors,
competitiveness, while 68% others do not have
Popa and Soto-acosta (2015) says that the ones,

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access to research and development (R&D) (NBS contexts. Specifically only little attention has been
& SMEDAN, 2012). given to the effect of growth strategies on firm
performance in developing country on a single
In any case it would appear that a firm that operates
study (Uko & Ayatse, 2014). Therefore, this
in an active local environment and experienced
current study has combined these studies in a single
high competitive pressure has advantage of
model in order to provide manufacturing based
employing differentiation strategy to help it
SMEs in rapidly competitive environment with
improve its performance. This indicates that
solutions on how to remain competitive, achieve
differentiation strategy is the pursuit of features
competitiveness and enhance performance.
that other competitors do not have in order to
enhance their competitiveness or have competitive Empirical evidence from previous studies have
advantage as a result of global competitiveness. shown that differentiation strategy is a fundamental
This article therefore, investigates the mediating strategy that can lead to firms’ competitiveness and
role of competitive strategy (differentiation) on the enhance their performance (Lechner &
relationship between growth strategies and the Gudmundsson, 2014), and that it is also a
performance of manufacturing based SMEs in mediating variable between firm’s strategic
North-west of Nigeria. orientations and performance. Literature has shown
there are little or no studies on the mediating role
1.1.1 Statement of the Problem
of competitive strategy, as existing studies were
The poor performance of the manufacturing based only conducted in Europe, such as France, Spain
SMEs in Nigeria has triggered the need for the and Portugal. Thus, indicating that there is limited
Nigerian Government, researchers and practitioners literature on the mediating role of competitive
to come up with measures on how to deal with strategy in African, particularly in Nigeria.
these issues strategically. One way of dealing with However, strategic growth can influence firm
these issues is to address them from the point of performance only if proper implementation of
view of the strategic management perspectives, a competitive strategy is maintained, to sustain
measure which if adhered to will help to provide competitive advantage.
the manufacturing based SMEs in Nigeria with a
Studies on strategic match are an emerging area
dynamic strategic direction capable of increasing
(Hilman & Kaliappen, 2014). However, to date,
competitiveness and enhancing performance.
there are no empirical studies on the strategic
Lack of competitive advantage is one of the main match in the relationship between market
causes of poor performance by manufacturing penetration, market development & product
based SMEs. In a country like Nigeria, development, differentiation and firm performance.
manufacturing based SMEs need dynamic Therefore, this study filled the missing gap in the
capabilities such as competitive strategy in order to existing literature concerning strategic match
respond to their firm strategic decisions on matters between growth strategies and competitive
dealing with competitiveness, maintaining strategy, as well as the mediating role of
competitive advantage and improving their differentiation strategy on the relationship between
performance (Teece, 2007; Teece, Pisano, & growth strategies and firm’s performance of
Shuen, 1997). Competitive strategy can enhance manufacturing based SMEs in Nigeria.
the competence of a firm and help it to sustain
1.1.2 Research Questions
competitive advantage over its competitors as well
Based on the problems mentioned above, this study
as help them enhance their operations effectively
intends to answer the following research questions:
(Abiodun, 2014; Awoyemi, 2011).
i. Is there any relationship between
However, some studies in the existing literature
growth strategies (market
found to have investigated the impact of growth
penetration, market development
strategies (market penetration, market
& product development) and firm
development, and product development) on the
performance?
firm growth and performance include (Han, Dong,
ii. What is the relationship between
& Dresner, 2013; Hussain, Khattak, Rizwan &
growth strategies (market
Latif 2013; Leitner, 2014). All the studies found
penetration, market development
positive and significant relationship between
& product development) and
growth strategies and performance. These studies
differentiation strategy?
were examined indirectly on the firm performance
iii. Does differentiation strategy
in such environment, as the service sector, larger
mediate the relationship between
and multinational companies in Asian and Austrian
growth strategies (market

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penetration, market development In a challenging environment like Nigeria,

& product development) and firm manufacturing based SMEs need dynamic
performance? capabilities, which would provide them with
superior performance (Akingbade, 2014). Superior
1.1.3 Research Objectives
performance relies on the ability of a firm to
The research objectives of the study are to
integrate, build and reconfigure both the intangible
investigate the impact of growth strategy, and
and tangible of firm resources to enhance
competitive strategy on manufacturing based SME
competitive advantage and sustain performance
performance. The objectives are as follows:
(Teece, 2007). For manufacturing based SMEs in
i. To assess the relationship Northwest Nigeria to achieve efficiency and
between growth strategies effectiveness, they must identify strategic
(market penetration, market capabilities that match their environment and
development & product which will in turn help them to attain superior
development) and firm performance.
performance.
2.2 Growth Strategies
ii. To examine the relationship
between growth strategies Growth strategy is how to increase firm’s activities
(market penetration, market to improve market share, and facilitate
development & product competitiveness and performance. One advantage
development) and differentiation of the Resource-Based View (RBV) is its capacity
strategy. for influencing or encouraging or creating
iii. To investigate the mediating competitive advantage in an industry (Barney,
effect of differentiation strategy 1991). Ansoff (1957) has developed four growth
on the relationship between level strategies helpful for industry competitive
growth strategies (market advantage and these are: market penetration,
penetration, market development market development, product development, and
& product development) and firm diversification. These strategies are now considered
performance. as strategic typologies for firms in both United
States and non-US Academics and practitioners
2.0 Literature Review
(Gmelin & Seuring, 2014; Hussain et al., 2013).
2.1 Firm Performance Other strategies are acquisition, merger, join
venture and strategic alliance (Wheelen & Hunger,
Performance is one of the main interests of most 2012) they are growth strategies, which help firms
fields of management studies and is concerned in
improve their mechanism for competitiveness and
relative terms with practicing business executive,
competitive advantage. The aforementioned are all
owners-managers and scholars. Firm performance
diversification strategies.
on the other hand refers to the ability of a firm to
achieve sales and profitability as well as 2.2.1 Market Penetration Strategy
nonfinancial advantage over its competitors
Market penetration is defined as a strategy that
effectively (Kaplan & Norton, 1996; Spillan &
bring increased business activities to the firm’s
Parnell, 2006). An enterprise, which is better in
current product and its existing markets share
terms of efficiency and effectiveness, has the
(Hussain et al., 2013). Some studies have
potentials to deliver product and services to both
acknowledged market penetration as growth
customers and stakeholder in a manner better than
strategy (Uko & Ayatse, 2014), and suggested the
their competitors. Therefore, the strategic
need to validate the relationship between market
perspective is one measure which allows
penetration and product innovation, market
manufacturing based SMEs especially those in
expansion and performance (Hutzschenreuter,
Northwest Nigeria to have the capacity to create
Kleindienst, Groene, & Verbeke, 2014). Market
opportunities in order to contribute to the economic
penetration involves decisions with regards to the
growth and social development of a nation (Singh
firm’s marketing strategies, on how to contain a
& Mahmood, 2014). However, note that for an
certain number of customers in a particular market
enterprise to arrive at this level it must improve on
(Barbero, Bueno, & Barringer, 2012). Thus, market
its rate of performance. Performance is the process
penetration is one of basic schemes that can
of quantifying the actions and activities of an
improve a firm’s competitiveness, revenue and
enterprise, which helps it contribute to the
performance.
achievement of the firm’s objectives and goals.

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2.2.2 Market Development Strategy competitive strategy is as should be expected be

matched with the firm's based resources as a means
Market development is regarded as a strategy
to responding to its changing environment of
aimed to enhance business performance through
particular markets and customers, and for meeting
existing products that are sold at the current and
stakeholders' expectations and successfully
new market. It is as well meaning as market
attaining organizational objectives (Gorondutse &
expansion (Rethel & Sinclair, 2014). Cui, Michael,
Hilman, 2017). Previous researchers have justified
and Shaoming (2014) suggest that the market
the importance of evaluating between valuable
development strategy is a vital strategic orientation,
strategic resources and what the environment
which enables a firm to obtain better market share
requires and the practices to be carried out by the
and as well as expand its products to new
firm to sustain its competitive advantage
customers in both the current and new market
(Venkatraman, 1989; Teece, 2007).
segments in order to sustain its competitiveness and
market share locally and internationally (Barbero et Competitive strategy allows firms to match market
al., 2012). Market development is therefore a requirements with firm's capabilities in order to
strategy to support firms in providing superior have better opportunities of creating competitive
products to customers, and to have high product advantage (Akingbade, 2014). Note that
flexibility. Product flexibility means making a competitive strategy (differentiation) is therefore
product or service more attractive than the existing considered in this study for a number of reasons
products in order improve market share and some of which are clarity, generality, and
competitive advantage. However, competitive simplicity. However, cost leadership and focus
advantage is a crucial matter for manufacturing strategy are not counted in this study because of
based SMEs. A strategy such as market environmental issues and for the fact they
development can help to determine a firm’s complements the others.
competitiveness, revenue and market share, which
2.3.1 Differentiation Strategy
in turn helps performance.
Differentiation is defined as a strategy that focuses
2.2.3 Product Development Strategy
on how the firm resource is committed in offering
According to Henrique, Gilberto and Miller (2013), unique product or services (Pehrsson, 2010; Slater
product development implies product innovation. & Olson, 2001). Since the products or services are
Product development is therefore a process that unique, the strategy provides means for sustaining
seeks to find new business opportunities, to superior value and high client loyalty. Therefore,
enhance competitive advantage and achieve greater an effective differentiation strategy can fulfil
performance. Most organizations invest greatly on customer need, through tailoring product or service
product development strategy to improve their to the customers (Azar, 2011), which permit firms
market share, enhance competence, competitive to charge premium price in order to enhance
advantage, and product life cycle management. revenue and increase performance. However, it is
Gmelin and Seuring (2014) studied the importance important for an organization to integrate its
of product lifecycle management and concluded growth strategies with a differentiation strategy in
that firms must have a well-defined strategy, which order to be able to come up with product/services
enable firms’ competitiveness and help to sustain unique from its competitor (Li & Dimitratos, 2014;
competitive advantage. However, one such strategy Murthy, 2012). Be that as it may, a differentiation
is the product development strategy. It allows firms strategy has the tendency to increase a firm’s
to explore customer’s diverse needs, market competitiveness, growth and enhance its
preference and managed competitive activities performance, in order to enable it achieve its set
effectively, in a rapidly changing environment. objectives.
Therefore, it is important for SMEs generally to
2.4 The Research Underpinning Theory
consider product development as one of its
strategic elements that enhances performance This theory is centred the resource-based strategies
(Sumaiyah & Rosli, 2011). of accumulating valued resources, which are
directed at firms’ aggressive strategic assets,
2.3 Competitive Strategy
considered as frequently not sufficient to sustain
Competitive strategy is considered as the direction meaningful competitive advantage. Thus, with
and scope of a firm over an extended period DCV perception, firms are positioned to timely
(Porter, 1985), to efficiently and effectively quickly and effectively respond to adaptable to
achieves competitive advantage and have greater innovation and along with their competence
performance over their competitors. The management in coordinating and reorganizing

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internal and external capabilities which help to theory is resource-based view related (RBV) and
sustain competitive advantage (Teece, 2010; Teece helps in determining a firm’s superior performance
et al., 1997). that is uncertain in a rapidly changing environment
(Teece et al., 1997). In view of this, this study is
The study used Dynamic Capabilities View (DCV)
recommending the adaptation of the dynamic
theory as a framework that incorporates the
capabilities view to enable a strategic alignment of
concepts used in this study to enhance empirical
the firm's growth strategies (market penetration,
knowledge and increase competency. It is a model
market development, and product development)
source for improving performance and sustaining
and competitive strategy (differentiation) as a
competitive advantage, which is also difficult to be
means to influencing greater performance.
imitated by competitors. As such, to be successful,
a specific competence must be improved on for end 2.5 The Theoretical Framework
users, and which is at the same time distinct, and
The research framework has three independent
difficult to copy (Teece, 2012). However, this
variables as represented by the growth strategies of
dynamic capabilities view suggests that the essence
firm internal resources (market penetration, market
of showcasing a firm’s capabilities and competence
development, and product development). The
is to highlight its managerial operations and
dependent variable is however represented by the
organizational structure with regards to the design
firm performance, while competitive strategy
it has adapted to position its resources, and create a
(differentiation) represent the mediating variable.
dynamic competence (Teece et al., 1997).
Resource-based view (RBV) is one of such
Therefore, there is the need for present day suitable
theories, to have conceptualized the importance of
organizations to integrate and build dynamic
heterogeneous valuable firm resources as
capabilities in order to remain competitive and
determinant in the performance of a firm (Barney,
respond to changes in their immediate
1991). Teece et al. (1997) argue that the new
environments.
impetus given to the RBV in alignment with
The dynamic capabilities view is therefore a dynamic capabilities makes it a strategic theory.
concept tied to coordination of organizational and The conceptual framework for the study is shown
managerial practices (Teece et al., 1997), as below.
signified by the firm’s specific history. Thus, the

Differentiation
Strategy

Market
Penetration
Strategy

Market Firm
Development Performance
Strategy

Product Figure 1.1 Conceptual Framework.

Development
Strategy
2.6 Hypothesis Development Competitive strategies are the most common
attributive resources used by a firm or firms to
2.6.1 Competitive Strategy (differentiation)
secure competitive advantage in a particular
Mediates the relationships between Growth
industry (Beard & Dess, 1981). As well they are
Strategies (market penetration, market
strategies, which focus on how a firm should
development & product development) and Firm
compete within an industry or compete for a
Performance.

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product or market segment. Hence, making for a suggestion. This study is compelled to hypothesize
competitive advantage is essential for the following:
manufacturing based SMEs as it helps them to gain
H1 Differentiation strategy mediates the
superior performance (Slater & Olson, 2001).
relationship between market penetration and firm
Access to competitiveness is therefore a critical
performance.
issue for manufacturing based SME performance
particularly as it relates to Nigeria. If having H2: Differentiation strategy mediates the
competitive strategies can help a firm enhance their relationship between market development and firm
competitive advantage (NBS & SMEDAN, 2012). performance.
Since this is so there is therefore the need to
H3: Differentiation strategy mediates the
establish a set of dynamic strategic structures that
relationship between product development and firm
can help manufacturing based SMEs improve their
performance.
competitiveness or gain competitive advantage to
sustain performance. 3.1 Methodology
Several researches have shown that a firm’s This study employed the quantitative survey
superior performance is determined by its ability to method of using questionnaire as instrument for
possess the required competitive strategies (Porter, data collection. This method was also chosen
1980, 1985; Armstrong, 2013). Competitive because it was found to be the most appropriate
strategies can help a firm with competitiveness, method for this study. That this is so because this
market share and enhance competitive advantage, study involves data collection from large number of
which in turn sustain firm growth and increase manufacturing based SMEs in Nigeria in order to
overall performance (Parnell, 2010; Uchegbulam et help determine the mediating role of competitive
al., 2015). strategy (differentiation) on the relationships
between growth strategies (market penetration,
There are studies in existing literatures that have
established the mediating effect of competitive market development, product development) and
strategy (differentiation). The literatures indicate firm performance. Additionally, this method was
chosen in order to allow the researcher to
what few empirical studies have found in
investigate whether or not there exist a direct
examining the mediation role of competitive
relationship between growth strategies (market
strategy (Santos-Vijande et al. 2012; Lechner &
penetration, market development, & product
Gudmundsson 2014; Hernández-Perlines et al.
2016). In general, from empirical evidence, it has development) and firm performance.
been established that competitive strategies (cost Apart from these investigations, the purpose of this
leadership and differentiation) can be used and has study is to test the hypotheses developed with
so far been used as mediating variable and it regards to the relationship between predictors
yielded significant positive result. These findings (independent variables), mediators and dependent
from previous studies indicate that a competitive variable. To accomplish this, the study took to
strategy is the only strategy, which can explain the gathering data cross-sectionally (cross-sectional) in
original relationship between independent and the order to adequately describe the characteristics of
dependent variable. Based on this, this study has the targeted population of the study. Thereafter the
opted to employ competitive strategy hypotheses were then tested to explain the nature of
(differentiation) to mediate the relationship the relationships between the factor(s) or their
between growth strategies (market penetration, differences in a particular situation (Sekeran &
market development and product development) and Bougie, 2003).
firm performance, particularly in relation to the
manufacturing based SMEs in Nigeria. 3.1.1 Measurement of Variables

Justifiably, previous studies have shown that, The study measured six main variables, which
although there is scanty evidence on studies with includes: Market penetration (MP) market
regards to the mediating effect of competitive development (MD) product development (PD),
strategies of firm in European, America, Asian differentiation (DF) and SME performance (FPM).
countries, there are insufficient literature on the The above-mentioned variables are these in
mediation role of competitive strategy on the connection to the number of items identified or in
relationship between growth strategies and consistent with the rule of thumb, which states each
performance of manufacturing based SMEs in variable, should have at least three measures (Hair,
African countries particularly of SMEs in Nigeria. Black, Babin, & Anderson, 2010).
Hence, based on the above evidences and

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However, to measure the degree of growth of (Gado & Nmadu, 2012; Sokoto & Abdullahi,
strategies (MP, MD & PD) in this study, Slater and 2013). This study has a sample of 317 SMEs
Olson (2001) questionnaires development method (Sekaran & Bougie, 2013). The sample was
was adapted. The questionnaires were built around increased to 476 (Bartlett et al., 2001), to avoid
six (6) items for each variable, which help nonresponse and sample size error. 476
significantly in increasing firms’ sales volume and questionnaires were proportionately distributed to
market share. The items were modified to suit the SMEs located at; Jigawa 26, Kaduna 87, Kano 312,
present study. The items were measured based on a Katsina 37, Kebbi 18, Sokoto 45 and Zamfara 22.
seven-point scale, whereas: 1= Not at all Important, The study received 329 (69%) out of 476
and 7= Extremely Important. Respondents were questionnaires, 26 questionnaires were rejected, left
asked to rate their degree of agreement with the with 303 (63%). SPPSS V23 was employed for the
level of growth strategic prospects, which help to data screening, for further SEM analysis. 10 items
enhance competitive advantage and firm were replaced for missing data, and 26 cases
performance. having +/-3.29 was deleted for the univariate
outliers. The study was left with 277 (58%) cases,
The questionnaire method adapted for the
which were used for further analyses.
competitive strategy (DF) was built on eight (8)
items and was taken from Roth and Morrison 4.1 Data Analysis and Presentation of Results
(1990), Hilman et al. (2009) used these instruments
4.1.1 Demography of Respondents
as well Some modifications were equally made to
fit the context of present study. The questionnaires The profile of respondents, descriptive result
were based on a seven-point scale, whereas; 1= Not revealed that 35% of the respondents are managers,
at all Important, and 7= Extremely Important. while 27% and 21% are owners and CEO
Respondents were required to rate degree of their respectively. About 70% are male, while only 30%
agreement on the level of firm's differentiation are female. The educations of the respondents 35%
strategy in improving firm performance. with first degree, while 30% have ND or NCE,
while 20% have SSCE, only 15% have a master
The firm performance in this study is measured in
degree and only 0.7% has Ph.D. The results show
relation to decisions on firm’s profitability, return
25% are sole proprietorship; 26% are limited
on asset, customer retention, attracting new
liability firms, and 41% are in partnerships, while
customers, reduce mismanagement, increase
9% are joint ventures. The analysis indicated that
facilities, increase operation efficiency compared to
the majority of SMEs are medium with an average
previous years, improve staff programs and
of 57.8%, whereas 42.2% are small firms. As for
organizational culture (Spillan & Parnell, 2006).
the location of the business, Kano with about
Thus, the study adapted questionnaires sequence
67.5%; 19.9% located at Kaduna and Sokoto have
developed by Kaplan and Norton (1992), also
only 13%. In response to the years of operation, the
validated by Spillan and Parnell (2006) using ten
result shows 39% are between 1 to 5 years, while
(10) items. Some modifications were as well made
21% are between 6 to 10 years. Only 18% operates
to accommodate the present study and based on a
between 11 to 15 years.
seven-point scale, whereas; 1=Strongly Disagree
and 7=Strongly Agree. Respondents were required 4.1.2 Measurement Model Analyses
to rate their degree of agreement on the level of
To determine the individual constructs measures
firm performance.
validity and reliability, the two-step modelling
3.1.2 Population and Sampling approach was used as recommended by Henseler,
Ringle and Sinkovics (2009). First started with
The target population for this study is 1,820
measuring the convergent validity and reliability,
manufacturing based SMEs, registered in North-
followed by discriminant validity. Below Table1.1
West of Nigeria, operating in Jigawa, Kaduna,
indicates the internal consistency and reliability. As
Kebbi, Kano Katsina, Sokoto and Zamfara states
suggested the rule of thumb, construct validity is to
(NBS & SMEDAN, 2012).
determine if the loadings each item are greater than
The study investigates the registered manufacturing 0.7; composite reliability also is greater than 0.7;
based SMEs in Nigeria (NBS & SMEDAN, 2012) average variance extracted should be greater than
that comprise the population of 1,814 in the North- 0.5 (Henseler, Ringle, & Sarstedt, 2014).
west.. The study is in line with the previous studies

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Table 1.1
Measurement Model: Reliability and Convergent Validity
Constructs Items Loadings CR AVE
MP03 0.61
Market Penetration MP04 0.76 0.75 0.50
MP06 0.74
MD01 0.80
MD02 0.72
Market Development 0.82 0.53
MD03 0.61
MD04 0.77
PD01 0.72
Product Development PD02 0.72 0.76 0.51
PD04 0.70
DF02 0.71
DF04 0.71
Differentiation 0.82 0.53
DF05 0.75
DF07 0.75
FPM01 0.81
FPM02 0.80
Firm Performance 0.83 0.55
FPM03 0.71
FPM05 0.64

In order to meet the threshold of CR 0.70 and above, and AVE 0.50 and above, the following items were deleted
MD 2 items, PD 3 items, DF 4 items, FP 6 items, as recommended by (Hair, Hult, Ringle, & Sarstedt, 2014). In
this study CR value for all the constructs were above the threshold value, the CR range from 0.760 to 0.830, this
indicates the reliability of the measurement model. The convergence validity of the constructs, where the
constructs explain half of the variance of their indicators, the result indicates the AVE values ranging from
0.510 to 0.550; this concludes that the convergent validity is established.
Table 1.2
Discriminant Validity (Fornell-Lackert Criterion)
Constructs 1 2 3 4 5 6
Market Penetration 0.71
Market Development 0.52 0.73
Product Development 0.36 0.60 0.71
Differentiation 0.49 0.62 0.50 0.39 0.73
Firm Performance 0.50 0.51 0.41 0.27 0.49 0.74

Table 1.3
Discriminant Validity (HTMT Criterion)
Constructs 1 2 3 4 5 6
Market Penetration
Market Development 0.85
Product Development 0.70 0.99
Differentiation 0.82 0.86 0.81 0.65
Firm Performance 0.83 0.69 0.67 0.42 0.68

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Discriminant validity was measured to see the between market penetration and performance; H2:
uniqueness of each construct (Hair et al. 2014). The Differentiation strategy mediates the relationship
study measured discriminant validity using Fornell- between market development and performance;
Larckert criterion (Hair et al. 2014), and Henseler’s H3: Differentiation strategy mediate the
heterotriait-monotraitt ratio (HTMT) of correlation relationship between product development and
as recommended by Henseler et al., (2014). Thus, performance.
the discriminant validity was measured by
In other ward, based on the results presented in the
comparing the square root of the AVE for each
Table , there are indication that relationship was
construct with the correlation presented in the
established, whereas differentiation strategy was
matrix. Table 1.2 above presents the results of the
observed to have mediated the relationship between
Fornell-Lerckert. Also supported by HTMT result
market penetration and firm performance (β=0.04,
presented in Table 1.3, thus, discriminant validity
p<0.05). Statistical data has in addition proved that
is established with HTMT0.90.
there is a mediating effect of differentiation on the
4.2 Hypotheses Testing for Mediating Effects relationship between market development and SME
performance (β=0.07, p<0.05). Lastly, is the
The structural model (bootstrapping) specifically mediating effect of differentiation strategy on the
analysed the mediating effects of hypotheses H1: relationship between product development and
Differentiation strategy mediate the relationship SME performance (β=0.03, p<0.10).
Table 1.4
Structural Model: Bootstrapping Results of Indirect Effect
(Mediation)
Beta Standard T- P-
Hypotheses Relationships a*b Error Statistic Value Decision
H1 MP -> DF-> FP 0.04 0.03 1.96** 0.05 Supported

H2 MD -> DF-> FP 0.07 0.03 2.18** 0.03 Supported

H3 PD -> DF-> FP 0.03 0.02 1.84* 0.07 Supported

*p<0.10; **p<0.05; ***p<0.01.

Therefore, the mediating role of differentiation is supported empirically. Based on account of this and the path
coefficients and t-statistics, the hypotheses may not be supported when there is a zero level between the lower
bound and upper limit of the confidence interval, which also relies on bootstrapping standard error (Hair et al.,
2014; Hair et al., 2016; Hair et al., 2012; Preacher & Hayes, 2010). Nevertheless, the SmartPLS 3.0 would be
seen to have automatically generated the confidence interval estimation at 2.5% lower level and 97.5% upper
level as presented in the Table1.5 below.
Table 1.5
Confidence Interval of Mediating Relationships
Hypotheses Relationship Beta a*b 2.50% 97.50% Decision
H1 MP -> DF-> FP 0.04 0.01 0.08 Supported
H2 MD -> DF-> FP 0.07 0.01 0.14 Supported
H3 PD -> DF-> FP 0.03 0.00 0.07 Supported

Note: Hypotheses is supported when there is no zero (where Lower Level has negative
sign and Upper Level has a positive sign).
The study assessed the effect size (f22) using the Cohen's (1988) formula as the stated rule of thumb, where the
effects f2 values of 0.02 indicates small, 0.15 stands for medium and 0.35 represents a large effect. This is unlike
the case of direct relationships model where there is only one endogenous construct (firm performance). The
effect size of this model is therefore concerned with three endogenous latent constructs (differentiation and firm
performance). Below are the results as presented in Table 1.6.

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Table 1.6
Assessment of the Effect Size for Indirect Relationships: f-Square
Latent Constructs R2 Included R2 Excluded f2 Effect Size
Firm Performance 0.37
Market Penetration 0.37 0.32 0.08 Small
Market Development 0.37 0.35 0.02 Small
Product Development 0.37 0.36 0.02 Small
Differentiation 0.44
Market Penetration 0.44 0.41 0.05 Small
Market Development 0.44 0.34 0.18 Medium
Product Development 0.44 0.42 0.04 Small
NA=not applicable
Table 1.7 presents the full model predictive relevance using blindfolding result of the cross-validated
redundancy (Q2) of the predictive endogenous latent constructs of this model indicates the Q2 values is greater
than zero for each predictive endogenous latent construct. The indicates 18% predictive relevance of the model,
as such there are other factors that influence the model.
Table 1.7
Predictive Relevance Q2 for Mediation Effect (Full Model)
Construct SSO SSE Q2=(1-SSE/SSO)
Differentiation 1108.00 862.91 0.22
Firm Performance 1108.00 905.22 0.18

5.1 Discussion Gudmundsson, (2014). Also H3 the result indicates

that differentiation explained the relationship
The main objective of this study is designed to
between PD and firm performance of
examine the mediating effect of competitive
Manufacturing based SMEs in Nigeria. The finding
strategies (differentiation) on the relationship
consistent with previous studies by Hussain et al.
between growth strategies (market penetration,
(2013) and Leitner (2014) both of which opined
market development, product development) and
that product development is related to firm
firm performance of manufacturing based SMEs in
performance via some mediating variables. This
Nigeria. To meet this objective, three (3)
considered, the finding of this study can therefore
hypotheses were proposed and tested using PLS-
be said in agreement with the postulations of
SEM bootstrapping method (Preacher & Hayes,
dynamic capabilities view theory (DCV).
2008). Analytically, the objective was achieved.
Specifically, to meet this determination hypotheses Therefore, the findings of this study confirmed that
H1, H2, and H3 where structured to examine the competitive strategy matters for SMEs, as
mediating role of differentiation strategy between differentiation strategy appears to require little
three (3) growth strategies and firm performance. investment with less risk to position firm’s
All the hypotheses were tested and the result was competitiveness in the industry, and improve
that differentiation strategy mediates the product quality and innovation. Therefore, the
relationship between growth strategies and firm results of this study supported (Lechner &
performance. Gudmundsson 2014), proving the mediating effect
of competitive strategy on the relationship between
The study examined the mediating effect of
growth strategies and SME performance.
competitive strategy (indirect relationship)
hypotheses, H1, H2 and H3. The PLS-SEM path The final model of this study indicates that four
results revealed that H1 differentiation mediates the Research Questions (1, 2 and 3) in this study were
relationship between MP and firm performance. answered by as well achieving four Research
The findings supported the study of Hernández- Objectives (1, 2 & 3). This suggest that,
Perlines, et al., (2016). H2 the result indicates that differentiation strategy mediated the relationship
differentiation explained the relationship between between growth strategies and performance of
MD and firm performance. This result also manufacturing based SMEs in Nigeria.
supports the previous study of Lechner and

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Market Penetration

H1

SME
Market Performanc
H2 Differentiati
Development e
on

H3
Product
Development

Figure 1.2
Theoretical Framework (Final Model)

5.1.1 Contributions Finding from this study is therefore an indication

that differentiation strategy is indeed mediation in
This study provides empirical evidence for the
the relationship between market penetration,
theoretical relationships hypothesized in the
market development, product development and a
research framework. Specifically, the study
firm’s performance. in other words, this means that
highlights the mediating role of competitive
to enhance performance by managing market
strategies (differentiation) on the relationship
penetration, market development, and product
between growth strategies (market penetration,
development strategies, manufacturing based SMEs
market development, product development) and
need to also improve their differentiation strategy.
performance of manufacturing based SMEs’ in
The finding is in addition of the opinion that
Nigeria. This study developed and tested three (3)
manufacturing based SMEs may equally need to
hypotheses, all were supported.
create avenues for competitive advantage in order
The outcome of its findings demonstrated that the to achieve superior performance. Put simply one
ability of manufacturing based SMEs to manage key contribution of this study aside its contribution
their internal strategies such as market penetration, to DCV, strategic management, growth strategies
market development, and product development will and competitive strategy is its role in clarifying the
help them to improve their competitive advantage. mediating role of differentiation strategy.
The fact is that although previous studies have
Apart from this, manufacturing based SMEs have
established that growth strategies do have an
the tendency to develop flow that will create a
influence on a firm’s performance, recently
better understanding of markets, customers and
literature have come to validate the even through
competitors, as well as improve their ability to
this is true such as influence is usually indirectly
concentrate on internal efficiency and
through mediating variables (Han et al., 2013;
effectiveness. It will also help to be able to improve
Hussain et al., 2013; Leitner, 2014), for emphasis
their decision on how to take their product-market
others have examined the mediating role of
strategy to the next level particularly with regards
competitive strategies on strategic orientation and a
to how to enhance product quality, features and
firm’s performance (Santos-Vijande et al. 2012;
design based on environmental needs. It is now a
Lechner & Gudmundsson, 2014; Hernández-
known fact that it is knowing and doing all of these
Perlines et al., 2016).
that can help a firm have improved customer

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loyalty, capture competitors’ customers enhanced issue in future studies a more complex model,
market share revenue and enhanced performance. which will hold these variables, and their
consequences will be needed.
Thus, what is obligatory is for SMEs to develop a
proper alignment of these strategies. This will give Thus, even though the aim of the research is to
manufacturing based SMEs better room for acquire a niche market. It is recommended room
competitiveness and an enhanced performance. for the analysis of the different strategies should
Conclusively, therefore, the study is support of the create in future be of interest to analyse the
argument to the effect that matching firm’s different strategies for future studies. Nevertheless,
strategies is a source of competitive advantage that and broadly speaking the findings of this study is in
will help to enhance performance. addition limited by the fact that it cannot be
generalized to SMEs operating in the country. This
SMEs are now recognized as major drivers of
is so because the 1,814 manufacturing based SMEs
economic development world over. Because of
studied are all in the Northwest only, specifically
their immense contribution to the economic and
on the manufacturing based SMEs. Thus, future
social development of their countries (Osotimehin
research could therefore consider investigating
et al., 2012), government policy makers have now
manufacturing based SMEs performance in other
acknowledged the need to positively alter their
parts of the country.
decisions by redirecting it towards improving the
standard and activities of SMEs, Nigeria inclusive. Finally, also the limitation faced by the researcher
The findings of this study has so far shown resulting from the study use of cross-sectional
amongst other things that Nigeria’s SMEs are now design for the data collection. Where data is
abreast with the importance of growth strategies collected at particularly point in time, and as such
and competitive strategy to their firms. In this may not permit the data to represent the long-term
regards, the result of this study is expected to help behaviours of the firms. Thus, for long-term
in to improving the economic activities of SMEs in assessment of firms, a longitudinal study is
Nigeria. recommended as this will for future studies and
allow data to be gathered for more than one period
On the whole it is the expectation of the researcher
of time to validate the findings from cross-sectional
that this study would be viewed as a stepping-stone
studies and allow for externalities.
for the industrial and socio economic development
of Nigeria as the country more so is targeting to be It is hoped that the outcome of this study would be
among the top 20 industrialized nations of the useful and inspiring to governments, academicians
world. and practitioners in their drive at establishing a new
paradigm of strategic management. In any case it is
5.1.2 Limitation and Recommendations for
additionally hoped that this research work will not
Further Studies
only serve as a means of enhancing
Regardless, the main focus of this study is therefore competitiveness amongst manufacturing based
cantered on how each of the growth strategies can SMEs, but encourage policy makers, academicians,
be matched with differentiation strategy by government agencies and practitioners to embrace
manufacturing based SMEs, as against what the concept of promoting the idea of a strategic
influences the levels of growth strategy. However, alignment between growth strategies and
considering the environment of business of the differentiation strategy, if not for anything but as a
manufacturing based SMEs in Nigeria, the study core concept in the establishment of manufacturing
had to also face limitation with regards to based SMEs with sustainable competitive
environmental difference. Perhaps to deal with this advantage and enhanced performance.
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