Cost leadership strategy for increasing oil palm plantation companies performance in South Sumatra, Indonesia

The oil palm industry contributes substantially to economic growth and employment in Indonesia. Establishing Nucleus Estate Smallholder (NES) plantations, or plasma schemes, is a strategic approach adopted by palm oil companies to augment production. This quantitative study investigates the impact of the cost leadership strategy on the performance of oil palm plantation companies, moderated by government funding and partnership policies. Employing a judgmental sampling technique, data were collected via Likert-scale questionnaires from 40 oil palm plantation companies in South Sumatra, Indonesia and analyzed using the Structural Equation Model-Partial Least Square (SEM-PLS) method. The findings demonstrate that the cost leadership strategy exerts a positive and significant effect on company performance. However, government funding and partnership policies did not significantly moderate the relationship between cost leadership strategy and company performance. The results suggest that companies should prioritize cost leadership strategies, such as enhancing production efficiency, cost reduction, and pursuing economies of scale, to improve performance. Furthermore, government funding policies were perceived as cumbersome due to complex administrative requirements, impeding companies’ ability to make agile decisions. Although the government’s partnership policy aimed to facilitate collaborations, it did not significantly influence the impact of the cost leadership strategy on company performance.