THE ANALYSIS OF MARKET ORIENTATION AND COMPANY RESOURCES IN THE BUSINESS STRATEGY PREPARATION FOR PERFORMANCE IMPROVEMENT OF AUTOMOTIVE LUBRICANT'S COMPANIES IN INDONESIA.

Author:Dina, Nur
 
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INTRODUCTION

Background Research

The increase in the number of motor vehicles covering the types of passenger cars, buses, trucks and motorcycles from 54,802,680 units by 2007 to 122,508,613 units by 2015, led to an increase in market demand for lubricant products for automotive in Indonesia. Nevertheless, most of lubricant need is still met by imported products as seen from the need for imported lubricants in 2014 to reach US $354 million while exports are only US $85 million. Although the production capacity of lubricants in Indonesia grew by 7% in 2014 compared to the previous year (reaching 1.9 million kilolitres), the actual production is still below 50% of its production capacity. This shows one of the shortages of the performance of lubricant companies in Indonesia.

The growth of lubricant production and sales in Indonesia from 2009-2015 can be seen in the following Table 1:

Table 1 DEVELOPMENT OF PRODUCTION AND SALES OF LUBRICANT OIL IN INDONESIA, 2009-2015 Year Local Product (Ton) Imported Realization of Product (Ton) Target Sales Local (%) Import 2009 552,320 112,544 85.20 86.13 2010 635,168 125,657 85.34 87.24 2011 745,687 130,500 86.15 85.44 2012 795,800 142,850 84.37 88.78 2013 847,527 160,706 86.54 86.75 2014 936,032 176,776 87.76 87.15 2015 933,453 179,643 85.79 86.38 Source: Matacorp, 2016 Table 1 shows that the growth of lubricant production increases but sales targets tend not to be achieved. Target realization has not reached 100% both import and local. From the results of verification of data obtained through interviews with some of the management of the lubricant industry, obtained information that unsold lubricant products are stored as stock, where the average stock reaches 20-25%. While the unattainable sales target occurs due to the increasingly fierce competition in the industry.

In 2015, lubricant oil demand in Indonesia is slowing due to the weakening of the national economy, which is affecting the decline of people's purchasing power. It is also seen from the sales of cars that fell 16% to 1,013 thousand units compared to 2014 realization of 1,208 thousand units (Gaikindo). In 2015, the national automotive lubricant production capacity reaches 1.933 million kilolitre, but its utilization only reaches 48 percent with sales target reaching 83.57%.

In 2011, Pertamina was a market leader in the lubricant industry with evidenced by mastery of market share 61%. Even though the figure was down to 57% in 2015, Pertamina still the number one followed by Shell (10%), BP (6%), Idemitsu (6%), Top 1 (5%), Total (2.9%) and the rest contested by several brands. Similarly, in 2016, Pertamina still controls the market share of automotive lubricant. Thus Pertamina is still able to become a market leader while its follower is only able to control the market well below 20%. Such conditions indicate that the performance of automotive lubricant companies has not been optimum due to market share which is as one of the company's performance indicators, as suggested by Wheleen & Hunger (2015); David (2013); Hubbard & Beamish (2011).

This condition is allegedly caused by the weakness in business strategy. Wheelen & Hunger (2015) argue that business strategy focuses on increasing the competitive position of a product or service of a business unit or company in a particular industry or market segment in which the business or business unit is competing. Business strategy covering competitive and cooperative strategy. Meanwhile, the lubricant companies have not been able to invent a unique product that are difficult to be copied by the competitors. The majority of the marketed lubricants are the same as those marketed by the competitors, without any value added. In addition, the selling price of automotive lubricant products that are considered cheap by customers is still hard to materialize due to the weak efficiency in raw material procurement and high operational costs. Other problem relate to inefficiency of operational costs and their impact to an uncompetitive price compared to its competitors, that cause customers easily switch to brands that are able to provide the most economical prices, as well as the creation of strategic alliances among lubricant companies has not been well done.

Meanwhile, some researches show the influence of business strategy on company performance. Chung et al. (2012) found that strengthening differentiation strategies, using information technology and implementing CRM activities can improve performance. In line with Nandakumar, Ghobadian & O'Regan (2010) who shows that competitive strategies affect performance.

The problem allegedly caused by the condition associated with the market orientation that has not been well developed. The definition of market orientation argued by Slaver & Narver (1990) is a broad organizational culture that helps companies performs the behaviours necessary for superior customer value creation and sustainable business performance. The conceptual model of market orientation includes three dimensions consisting of customer orientation, competitor orientation and inter-functional coordination. Meanwhile, the lubricant company is still not optimal in anticipating the movement of the direction of competition both short and long term and the change in customer demands that cause the difficulty of products to be absorbed by the market.

Meanwhile, Zolfagharian & Cortes (2010) find the relationship between market orientation and strategy (differentiation, cost leadership, innovation) mediated by the complexity of segmentation. Besides, Affendy, Asmat-Nizam & Farid (2015) found the positive effect from market orientation on company's business performance.

On the other hand, there are other issues related to the ownerships of company resources. According to Pearce & Richard (2015), the resources in each company fundamentally different and have unique "bundle" of resources consisting of tangible assets, intangible assets and organizational capabilities. Similar opinions are expressed by Ireland, Hoskisson & Hitt (2015), where RBV assumes that each organization is a collection of unique resources and capabilities. However, there are problems in financial resources, the reputation of lubricant products that are still low in comparison with the imported products, lack of intellectual property ownership and labor-related issues. Meanwhile, Roja & Nastase (2013); Ugheoke, Isa & Noor (2014); Karami, Sahebal, Zamani & Sarabi (2015) found a link between company resources and company performance.

Based on the research background, it can be identified the fact of the problem that is the low Performance of lubricant Company. Based on the results of preliminary research and the reviews of previous research, allegedly it caused by the problem in implementing Business Strategy. On the other hand, previous research shows that business strategy is related to market orientation and company resources. So this study aims to examine the effect of market orientation and company resources on business strategy and its implications on the performance of automotive lubricant companies in Indonesia.

LITERATURE REVIEW

Market Orientation

Sorjonen (2011) suggests that if to be previewed from the process and philosophy of management, market orientation is aimed at creating superior value to customers by responding to market information. Market orientation is defined as the development of market intelligence related to customers, competitors and other stakeholders, dissemination at the organizational level and response to information, as well as coordination of those matters. According to Junji (2011), market orientation is a behaviour based on organizational norms and values that encourage development, dissemination and responsiveness to market intelligence.

Gaur, Vasudevan & Gaur (2011) explains that the concept of market orientation can be grouped into two groups: Behavioural approaches and cultural approaches. In behavioural approaches, market orientation is seen as a set of activities to increase customer satisfaction. While in the cultural approach (Narver & Slater, 1990), market orientation emphasizes the dissemination of values and beliefs within a company to place customer interests above all else.

Kohli & Jaworski based on behavioural approaches, emphasizing market orientation that includes intelligence generation, intelligence dissemination and organization wide responsiveness. While based on a cultural approach, according to Narver & Slater (1990), market orientation is operationalized with customer orientation, competitor orientation and inter-functional coordination. Both approaches are similar in the sense that the customer remains a key element of the market...

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