Literature has widely reported the increase of firms competitive advantage resulted from better product quality. However, in some industries product quality does not escalate competitive advantage significantly. Competitive priority stemmed from product quality is presumed to be the driving factor of Total Quality Management (TQM) implementation. This study investigates how product quality as competitive priority influences the implementation of TQM. The results explain the divergence of TQM implementation among manufacturing firms. Empirical data from 152 manufacturing firms in Indonesia are analyzed using structural equation modeling (SEM). The results indicate that product quality as competitive priority affects TQM implementation positively. In addition, the structural model shows that the relationship between product quality as competitive priority and firm performance is fully mediated by Total Quality Management. The contribution of this study is providing explanation why some firms are more receptive toward Total Quality Management than the others. The strong positive relationship between Total Quality Management and firm performance suggests that, whether the manufacturing firms have product quality as their competitive priority or not, they need to recognize the impact of Total Quality Management on firm performance
