Impact of Porter’s Generic Strategy on Firm Performance with reference to Nepalese Retail Banking Sector

Abstract

Porter’s generic strategies are the proven and pervasive strategic options in achieving competitiveness and better firm performance. This paper aims in examining the effect of Porter’s generic strategies (low-cost, differentiation, and focus) on firm performance in the context of Nepalese retail banks, a more competitive service industry. This study applies casual comparative research design and the data have been collected through administering questionnaire survey from 75 senior bank managers of 18 Nepalese commercial banks who being engaged in strategic affairs. The econometric model has been constructed to measure the expected effect of the strategies on firm performance. The descriptive analysis, Pearson’s correlation analysis, and multivariate regression analysis were conducted. The empirical results of correlation analysis and multiple regression analysis produced consistent results indicating positive associations between generic strategies and firm performance. The empirical results from regression analysis declared higher positive and significant impact of low-cost on firm performance. Similarly, positive effect of differentiation strategy and focus strategy on firm performance was reported. The findings suggested that pursuing low cost strategy provides more financial returns with comparison to differentiation and focus strategies. The finding also suggested for combination of low-cost and differentiation (and focus) strategies could provide better competitiveness and firm performance. Keywords: Generic Strategy, Low-cost strategy, Differentiation strategy, Focus strategy, Firm performance