RESOLVING THE LOW PERFORMANCE: A MILES AND SNOW’S TYPOLOGY APPROACH TO STATE-OWNED ENTERPRISES IN INDONESIA

• Main Author: Apriyantopo, Wahyu
• Format: Theses
• Language: Indonesia
• Online Access: https://digilib.itb.ac.id/gdl/view/48931
• Institution: Institut Teknologi Bandung

Low performance and profit are both highlighted as the major current problems for State-Owned Companies (SOEs) in Indonesia. For that reason, there should be “a cure for the pain” to boost the SOE’s performance. The research in SOEs is important since the entity has dual-purposes, both increasing profit and providing public goods or services. Government typically tends to inject more capital and adding the ownership portion to back up the SOEs financial distress. On the other hand, the way SOEs establish their strategic position compared to competitors is also important either to reduce the loss or increase the profit. Theoretically, there are studies which observe the capital injection or ownership or strategic position in relation to the SOEs performance, but none of those studies have integrated the factors in one research framework. Since the SOEs should deal with internal inefficiencies and external turbulences, those factors emerged as a vital research gap to be investigated. This issue motivates the writer to empirically examine the SOEs’ performance in Indonesia using those antecedents. This thesis aims to investigate the State-Owned Enterprises (SOEs) performance issues in Indonesia. For doing that, a strategic perspective is utilized along with the internal—such as SOEs’ size and state ownership—and external factors—such as capital injection and industry concentration. Consequently, the measurement of firms’ performance should be tested, wisely with the firms’ choice of strategy. One of the leading theories which are commonly used to measure the strategic type of companies is Miles and Snow’s Typology. The typology entails four type strategies, such as Prospectors, Defenders, Analyzers, and Reactors. Defenders’ strategic typology identified as efficiency-based positioning. While conversely, prospectors’ strategic typology emphasizes on developing and prospecting the new products market. In the middle of both strategies, there is analyzers’ strategic typology which combines the strength of prospectors and defenders altogether. The remainder strategy, reactors, developed as the ‘residual’ strategy, which indicates the inconsistency or over-reactive strategy to the environment changes. To carry out the research, the writer uses the SOEs’ financial report in Indonesia from 2014 to 2018. The data contains 113 companies in ten industries. However, only 94 companies are available to be observed. The writer uses an ordinal logistic regression method to analyze the relationship. The operating variables are defined as follows. The Miles and Snow typology is the indication of firms’ business strategies (STR). This research employs similar ratios from several previous ii studies. The variables are the ratio of operating expense and ratio of cost of goods sold (COGS) to net sales (OPEXCOGS/SALES); compound annual growth rate (CAGR); the ratio of property, plant and equipment (PPE) to the total asset (ASSETS) and ratio sales (SALES) to property, plant and equipment (PPE). The first two ratios represent prospectors in a higher score, while the last two ratios represent defenders in a higher score. The writer uses the ranking score to attribute the typology classification. This ranking score is conducted by quintile distribution, similarly to several previous studies. As the additional variables, SOEs’ size (SLR), state ownership (OWN), capital injection (CAP), and industry concentration (MAC) are incorporated. SLR reflects the dimension of resources owned by the companies to increase the profit. Then, OWN indicates the ownership structure of the firms, it provides the percentage of government’s ownership to SOEs. CAP is a proxy for occurrence of capital injection to SOEs. MAC is the measurement of industry competitiveness by squaring the market share of each SOEs competing in a market and then summing the resulting numbers. For the dependent variable, this study uses PERF as a proxy for SOEs’ performance. It is measured by ROE or net income divided by total equity. To obtain the level of performance, PERF then scored to determine three levels of performance, i.e. low, mediocre and high performance. This study utilizes Ordinal Logistics Regression (OLR) since the type of response variable (PERF) is converted to categorical data, which have more than two categories. OLR performs the relationship of STR, SLR, OWN, CAP and MAC on PERF (i.e. ROE level), with the interaction effects as the additional predictors, i.e. STR*SLR and STR*OWN. The results show that strategic typology, size, capital injection, and market concentration significantly affect the performance. Then, the interaction effect of strategy-ownership and strategy-size gives significant results on performance. State ownership is the only rejected hypothesis. This study proposes three contributions. First, it enhances the existing frameworks to measure Miles and Snow’s strategic typology. Second, the study can be a reference by the government or managers to analyze and consider the appropriate firms’ strategy both in the internal and external environment. Third, this thesis modifies an existing model of Miles and Snow’s typology with hybrid typologies, i.e. Analyzer tendency to Prospectors and Analyzer tendency to Defenders, which expected to be practical support in the strategic management studies. Keywords: Miles and Snow Typology, Firms’ Size, Government Ownership, Capital Injection, Market Concentration, State-owned Enterprises, Interaction Effect, Ordinal Logistics Regression