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Internationalization is a key strategy in some Nigerian banks for growth and greater profit opportunities. This development had led banks to embark on international expansion by opening subsidiaries abroad. Banking reforms especially recapitalization policy, increased regulatory controls, stiff competition in the domestic market, reduced market share, has impacted on the profitability of commercial banks in Nigeria. This study examined commercial banks internationalization and business outcomes in the banking industry in Nigeria with particular reference to selected banks that have subsidiaries in foreign countries.


The study adopted survey research design.The target population comprised of 17200 top level managersof the five top commercial banks with wholly owned subsidiaries outside Nigeriaand a stratified random sampling technique was used to select the sample size of 793. Data were collected using a self-administered structured questionnaire and validated for the study. Cronbach Alpha reliability for major constructs ranged between 0.84 and 0.91.The response rate was 96.8%. The data collected were analyzed using descriptive statistics, hypothesis one and two were tested using simple regression and hypothesis three and four were tested using Pearson correlation statistics.


The findings revealed that commercial banks internationalization had a significant relationship on business outcomes in the banking industry in Nigeria. Results indicatedthat location choices of internationalized Nigerian commercial banks had significant effect on business outcome (F1/766 = 31.725; R2= 0.345; p< 0.05. Government policies on internationalization had significant effect on the business outcome of an internationalized commercial bank (F1/766 = 101.152; R2= 0.117; p< 0.05). Commercial banks motives for internationalization had significant     relationship with business outcome (r=0.318; p< 0.05). Entry Mode had a significant relationshipwith business outcome of an internationalized commercial bank(r=0.778; p< 0.05).


The study concluded that internationalization resulted to positive business outcomes as internationalized banks benefited from growth in profitability, market share, increase in asset base and capitalization. The study recommends that banks seeking opportunities in foreign markets must conduct detailed feasibility studies to understand barriers to entry, factors that affect location choice, influence of government policies and select entry mode that ensures it can constantly compete in the foreign market.


Keywords:     Internationalization, Business Outcomes, Commercial banks, Transaction cost. Resource-based View, foreign direct investments.


Word Count:  350





Content                                                                                                                                   Page

Title Page                                                                                                                                i

Certification                                                                                                                            ii

Dedication                                                                                                                              iii

Acknowledgements                                                                                                                iv

Abstract                                                                                                                                  v

Table of Contents                                                                                                                   vi

List of Tables                                                                                                                          ix

List of Figures                                                                                                                         x



1.1       Background to the Study                                                                                           1

1.2       Statement of the Problem                                                                                           3

1.3       Objective of the Study                                                                                               5

1.4       Research Questions                                                                                                     5

1.5       Hypotheses                                                                                                                 5

1.6       Scope of the Study                                                                                                     6

1.7       Significance of the Study                                                                                           6

1.8       Operationalization of Variables                                                                                  6

1.9       Operational Definition of Terms                                                                                 7



2.1       Conceptual Review                                                                                                     9

2.1.1    Motive for Internationalization                                                                                   10

2.1.2    Location Choices                                                                                                        11

2.1.3    Government Policy                                                                                                     14

2.1.4    Entry Mode                                                                                                                 16

2.2.0    The Theories of Internationalization                                                                           21

2.2.1    Incremental Internationalization Models                                                                    21

2.2.2    Innovation- related internationalization Model                                                          23

Content                                                                                                                                   Page

2.2.3    Dunnings eclectic paradigm                                                                                       24

2.2.4    The industrial network approach                                                                                25

2.2.5   Rapid Internationalization Models                                                                             25

2.2.6    Resource-based View                                                                                                 26

2.2.7    Transaction Cost Analysis                                                                                          28

2.2.8    Internalization Theory                                                                                                 29

2.2.9   Banks and theories of internationalization                                                                  30 The Nature of Services                                                                                               30 The Uppsala model and the Internationalization of Banks                                        31 The eclectic theory and the internationalization of banks                                          32 The resource-based view (RBV) and the internationalization of banks                     33 Transaction Cost Analysis and the internationalization of banks                               34

2.3       Empirical Review                                                                                                        36

2.3.1    Empirical review of commercial banks internationalization                                       36

2.3.2    Empirical review on Location Choice                                                             36

2.3.3    Empirical review on Government Policies                                                                  39

2.3.4    Empirical review on Motives                                                                                      41

2.3.5    Empirical review on Entry Modes                                                                              43

2.3.6   Business Outcomes                                                                                                      45

2.4       Gaps in Literature                                                                                                       48

2.5       Research Model and Hypothesis                                                                                49

2.6       The Nigerian Banking Environment                                                                           51



3.1       Research Design                                                                                                         55

3.2       Population                                                                                                                   56

3.3       Sample size and sampling Technique                                                                          57

3.4       Method of Data Collection                                                                                         59

3.5       Research Instrument                                                                                                   59

3.6       Pilot Study                                                                                                                  59

3.7       Validity of Research Instrument                                                                                60

Content                                                                                                                                   Page

3.8       Reliability of Research Instrument                                                                             60

3.9       Method of Data analysis                                                                                             61

3.10     Model Specification                                                                                                    61

3.11     A Priori Expectation                                                                                                   62

3.12     Limitation of Methodology                                                                                        62

3.13     Ethical Consideration                                                                                                 62




4.1       Response Rate                                                                                                            64

4.2       Descriptive Analysis of Demographic Profile of the Respondents                            64

4.3       Data Analysis, Interpretation and Discussion of Findings                                         66

4.3.1    Restatement of Objectives and Research Question One                                            67

4.3.2    Restatement of Objectives and Research Question Two                                           76

4.3.3    Restatement of Objectives and Research Question Three                                          82

4.3.4    Restatement of Objectives and Research Question Four                                           87

4.4       Summary of Findings                                                                                                 91



5.0       Introduction                                                                                                                94

5.1       Summary                                                                                                                     94

5.2       Conclusion                                                                                                                  96

5.3       Recommendations                                                                                                      97

5.4       Contributions to Knowledge                                                                                      98

5.5       Implication of the Findings                                                                                        98

5.5.1    Managerial Implications                                                                                              98

5.5.2    Implications to Regulatory authorities and Policy Makers                                         99

5.5.3    Implications for society                                                                                              100

5.6       Suggestion for Further Studies                                                                                   100

References                                                                                                                  102


Table                                                                                                                                Page

2.1:2012 cross-border subsidiary of Nigeria Banks’ in Africa and other continent                                  53

3.1: List of Selected Internationalized Deposit Money Banks in Nigeria and their

Total Number of Employees                                                                                                   57

3.2: Distribution of Questionnaire by banks                                                                               58

3.3: Questionnaires Cronbach alpha coefficient                                                                          60

4.1: Response Rate                                                                                                                      644.2: Analysis of Demographic Characteristics of Respondent                                                      65

4.3: Descriptive Analysis of Location Choices in internationalization of Nigerian

Commercial banks                                                                                                                   67

4.4: Descriptive Analysis of Business Outcomes of Internationalized Banks                            70

4.5: Coefficients of regression of location choices in relation to business outcomes                  73

4.6: Descriptive Analysis of Government Policy                                                                        76

4.7: Coefficients of regression Government Policies in relation to business outcome

of an internationalized commercial bank                                                                                79

4.8: Descriptive Analysis of motives and reasoning behind internationalization of

Commercial Banks in Nigeria                                                                                                 82

4.9: Pearson Product Moment Correlation Coefficient for relationship between

Commercial banks motives for internationalization and business outcome                            86

4.10: Descriptive Analysis of Entry Mode                                                                                  88

4.11: Pearson Product Moment Correlation Coefficient for relationship between

entry mode and business outcome of an internationalized commercial bank.                        90

4.12: Summary of findings of hypotheses                                                                                  91









Figure                                                                                                                                          Page

2.1 The Basic Mechanism of internationalization- State and Change Aspect                            22

2.2 Diagrammatical Representation of Gap in the Literature                                                     50

































1.1       Background to the Study

The banking sector in Nigeria witnessed phenomenal growth following the 2004 consolidation that increased minimum capital requirement from N2billion to N25billion. The opening up of the Nigerian economy through various structural reforms, and trade liberalization led to setting up of many banks in Nigeria. These banks had inadequate capital base and were unable to play the role expected of them in economic development. In 2003 there were 89 banks and in a period of 10 years, precisely 2013, the number has reduced to 23. Over the same period, Nigerian banks automated its operations to serve their customers more effectively and efficiently and to keep pace with global technological advancement. As part of the reforms, the Central Bank of Nigeria (CBN) grouped the banks into international, national and regional banks and cancelled the universal banking policy. The reason was for banks to operate according to their capacities (Alade, 2014). Prior to that categorization, most banks developed strategies for growth that included expanding local branch networks and opening offshore branches.


In the Nigerian banking industry, Citibank, Ecobank, StanbicIBTC, Standard Chartered and Ned bank have their roots outside the shores of Nigeria. Citibank, Ecobank, StanbicIBTC, Standard Chartered have been  in Nigeria  since 1989, Ned bank was granted license in 2013 and only started operations in 2014. Nigerian commercial banks started their foray outside the shores of the country in 2002 with United Bank for Africa (UBA) and Guaranty Trust Bank (GTB) opening branches in two countries in Africa. Six years later, 10 Nigerian banks that scaled the hurdle of consolidation followed the footsteps of UBA and GTB thereby creating a situation in the banking sector where the number of Nigerian banks with branches in other countries especially African countries outweighs that of international banks operating in Nigeria.Internationalization refers to the process of increasing involvement in international operations (Asika, 2006). The merits of internationalization accrue to both the expanding banks and the recipient banking system. The main benefits for the parent company would be risk diversification and greater profit opportunities for shareholders. The recipient banking systems, on the other hand, would benefit through increased intermediation and improved efficiency resulting from technological advancement, reduced interest rates and efficiency improvements due to increased competition.  Internationalization has been a reservoir of   skill, equipment, efficiency and technological transfers, mainly from advanced countries to emerging markets; this is based on the premise that local firms in emerging markets gain from the foreign direct investment externalities through improved efficiency, labour, exports and global integration (Brouthers& Hennart, 2007).


The banking sector is a catalyst and engine of growth in the Nigerian economy and growth in this sector is expected to continue at a faster rate given the growth prospects, and the various transformation policies of the Federal Government. As a result of the financial reform policy of the Central Bank of Nigeria, especially the consolidation policy, there has been a marked increase in the internationalization activities of Nigerian banks.  Four top commercial banks namely United Bank for Africa (UBA), Access Bank, GTBank and Zenith Bank combined are operating in more than 20 countries in the African continent as well as presence in UK, China, France and USA (Ebimo, 2014). Ebimo (2014), further observed that despite the economic crisis and increasing stringent controls and monitoring by regulators, Nigerian banks are determined in their foreign market entries with fresh decisions about offshore expansions made regularly by bank boards and management. The growing regional integration among developing economies is providing a veritable platform for firms in these economies to explore the inherent benefits of internationalization. Business outcome refers to accounting and non-accounting parametres employed to determine the success or otherwise of an enterprise that has internationalized its operations. Such accounting measures include return on capital employed, profit margin, sales margin, market share and incremental deposit mobilized.


The work of Hamzat and Ajila (2006) employed common indicators of performance measurement that are largely accounting-based. This study will extend this further by investigating the motive behind internationalization as a measure of the outcome. For example, one of the motives of banks internationalization is to follow their customers across various countries they operate in. This will involve value chain marketing of the customers’ retailers, suppliers, contractors wherever the customer establishes subsidiaries. In this case, bank internationalization is motivated by maintaining existing client base.

Onafowora and Onoye, (2006), Ezeoha (2007) opined that internationalization in Nigeria dates back a few years ago when indigenous companies realized that the world is becoming a global village and that moving with the trend would offer them more opportunity and unlimited scope for growth. Nevertheless, there is no coordinated approach that may help practitioners have a deep understanding of the internationalization decisions of the productive and service sectors. Scholars like Brouthers and Brouthers, (2001) had developed a globalization model for manufacturing companies, these models were concentrated on western countries and were not thoroughly verified in less advanced countries (Onafowora & Onoye, 2006).


Contemporary studies of internationalization and firm economic performance outcomes are largely based on western countries. Studies explaining the relationship between internationalization and business outcome as it relates to emerging markets have been extremely few (Nachum, 2004). The work of scholars such as Fleury and Junior, (2007), Contractor, Kumar and Kundu (2007), are largely based on firms from emerging economies like Russia, India, China and Brazil

Based on the foregoing, this study provides an insight on commercial banks internationalization and business outcomes in the context of a country in sub-saharan Africa, Nigeria.


1.2 Statement of the Problem

Globally, many companies that are facing slow domestic growth are attracted to internationalization to enhance business fortunes (Duysters, 2009). Greater competitive pressures force firms to internationalize, and consequently firms need to respond to new levels of complexity surrounding the diverse cultural, institutional and competitive environment. In the manufacturing sector two companies, Haier Group and Tata Group, provide ready examples. In 1984, a renowned manufacturer of comprehensive household appliances in China, the Haier Group, was close to bankruptcy as evidenced in declining turnover and high debt profile. The trend of globalization and the rising interdependence of the world economy since the late 1980s marked a turning point in the history of Haier (Duysters, 2009). The company envisaged keen competition from foreign firms in a hitherto (largely) protected domestic market. Haier thus restrategized changing its focus from the domestic market to foreign markets.


Tata Group is India’s largest business group deriving half of its earnings from export and offshore production. The reason or motive for internationalization was the desire to diversify and reduce dependence on a declining and stagnant domestic market.Goldberg and Johanson,1990; Buch and Lipponer, 2004; Magri, Mori, and Rossi (2005) postulated that commercial banks as service providers, establish in foreign countries to increase market share, maximize profit  and maintain existing clients who are expanding to foreign markets. Furthermore, they also expand to exploit ownership advantages that include technology, organizational skills, managerial competence, and credit and marketing skills. It has been mentioned that the first mistake companies make is in choosing the wrong motives to expand internationally (Wenbo, 2007). Going abroad because the domestic market has little or no growth is a bad reason. It has been suggested that failure in internationalization initiatives could be as a result of adopting improper internationalization strategy and process due to knowledge gap of the specific features and developments in the extremely competitive global market.

Walmart, the most successful retail operation in USA failed in Germany due to poor management and total absence of analysis of the local market or culture of the host country (Andreas & Andreas, 2003). Another object of concern is mode of entry into foreign markets. There are different entry modes, the most common are alliances and joint ventures, franchising, importing and exporting, licensing agreements, wholly–owned subsidiaries, mergers and acquisitions (Luthans & Doh, 2009). Why do Nigerian banks prefer subsidiary mode and not any other entry mode, especially given the inherent risk and higher cost in terms of resources and commitment of finance? The Central bank of Nigeria in 2012 discouragedNigerian banks from shoring up the capital base of their foreign subsidiaries due to the pressure it places on the balance sheet of parent banks. The apex bank had insisted that the parent (Nigerian) banks should either raise capital to recapitalize their foreign subsidiaries in the host countries or exit such foreign subsidiaries in the event of failure to raise capital.


Due to slow recovery of the capital market, Access bank has to divest from its Cote d’ivore subsidiary. Aside the substantial investment in internationalization by companies globally, there has been a limited acceptable ways to determine business outcomes and methods of measurement and this limitation could lead to defects. As a result many researches use financial metrics such as sales, profit, and balance sheet size as a form of measuring firm business outcomes. Nevertheless, non- accounting and qualitative methods can replace accounting methods as objective measures of outcome (Brothers and Hennart, 2007). It is suggested in this study that other than the usual measures of internationalization outcome, motives behind the internationalization would be used to measure business outcome.




1.3   Objective of the Study

The general objective of this study is to examine the relationship between commercial banks Internationalization and business outcomes in the Nigerian banking industry in the context of domestic economic reform and liberalization of trade. The specific objectives are to:

  1. examine the effect of location choices in internationalization of Nigerian commercial banks have  on business  outcome;
  2. identify how government policies on internationalization in the banking sector affect business outcome;
  3. determine the relationship between motives behind decision of Nigerian commercial banks to internationalize and business outcome and
  4. evaluate the relationship between entry mode into foreign markets and business outcome.


1.4      Research Questions

  1. How does location choice on internationalization of Nigerian commercial banks affect business outcome?
  2. How does government policies on the internationalization of commercial banks affect business outcome?
  3. What is the relationship between the underlying motives and reasoning behind internationalization of commercial Banks in Nigeria and business outcome?
  4. What is the relationship between entry modes adopted by Nigerian commercial banks in internationalization and business outcome?

1.5       Hypotheses

The hypotheses of this study were tested at P < 0.05 level of significance

H01         Locationchoices of internationalized Nigerian commercial banks does not have significant effect on business outcome.

H02         Governmentpolicies on internationalization do not have significant effect on the business outcome of an internationalized commercial bank.

H03         The commercial banks motives for internationalization does not have significant relationship with the business outcome

H04       There is no significant relationship between entry mode and business outcome of an internationalized commercial bank.


1.6    Scope of the Study

In terms of geographical area, the five commercial banks chosen all have head offices in Lagos, Nigeria and the study will focus on internationalization activities within the African continent. In this study, the researcher did not focus on merchant banks or  foreign banks operating in Nigeria such as Citibank, StanbicIbtc, Standard Chartered bank but on indigenous banks with origin from Nigeria with subsidiaries outside Nigeria and listed on the local bourse. The banks selected are Access bank, First bank, Gtbank, Zenith Bank and UBA.


1.7   Significance of the Study

Society:   Banking is a crucial sector to the welfare of all business entities and the society at large. The society comprises of equity investors and the banking public who are consumers of banking services, equity investors would earn good returns on their investments owing to internationalization activities of commercial banks while consumers can conveniently access banking services no matter where they are.

Industry and Management Practice:   For industry players, the findings are very useful as it educates players on how to successfully internationalize to respond to competition from international banks for the developing economies of sub-saharan Africa.  Managers of commercial banks could through this study get an insight on how best to construct investment portfolio among other industry firms.

Academic Relevance:  The study would be useful in generating new knowledge and opening new frontiers as such academics would find a source of reference for future research.

For students, it will provide fresh insight into the phenomenon of international expansion by commercial banks. The study is original in view of the fact that it adds to the literature, the factors that determine foreign expansion by banks from an emerging economy, in this case, Nigeria. The findings shall constitute an important body of knowledge for students and also enhance their understanding of the subject.

Stakeholders and Government: Policy makers would find the result useful in policy formulation and implementation in ensuring that conducive environment that supports indigenous banks to internationalize is created.


1.8 Operationalization of Variables

The variables in this study are location, entry mode, motivation and government policies

Y         =          f(X)

Y         =          Dependant Variable – Business Outcomes

X         =          Independent Variable – Factors that influence Internationalization

X         =          (x1, x2, x3, x4)

Where Y          = Business Outcome

x1         = Location Choices

x2         = Government Policies (home and host country)

x3         = Motive for Internationalization

x4         = Entry mode

Y         = f(x1, x2, x3, x4)

Y         = f(x1)………………………………………….(1)

Y         = f(x2)………………………………………….(2)

Y         = f(x3)………………………………………….(3)

Y         = f(x4)………………………………………..  (4)


Model specification

The Specific models are

Y  = a0  + β1 x1+ e……………………………..H01

Y  = a0 + β2 x2 +e………………………………H02

Y  = f(x3)………………………………………H03

Y  = f(x4)……………………………………..H04

Where Y  = Business Outcome

x1  = Location choice

x2 =Government Policy

x3 = Motive for Internationalization

x4 = Entry mode

e =   error term

a0 = intercept of the model

β1 – β2 are the coefficients of the respective component of Internationalization.


1.9 Operational Definition of Terms

Business Outcome: Business outcome which can also be referred to business performance indicates how well an enterprise performs as a result of internationalization of its operations and is an essential factor in measuring organization success. Business outcome will be measured in this study by quantitative and qualitative methods. Such quantitative methods will be accounting-based such as percentage contribution of foreign subsidiaries to turnover, profit, total assets and deposits. Qualitative methods will incorporate motives of the bank for foreign expansion and how well it was achieved.


Location choices: refers to the factors that influence choices that banks make in deciding in which market or country to invest in. It refers to all the key factors of production such as geographical location, transportation and traffic, culture and history, and political legal system.


Mode of Entry: is the formal arrangement that guarantees seamless establishment of a bank’s presence and the transfer of bank’s products, innovation and services, information technology platform, human resources, management and organizational skills into a foreign country. It is the implementation stage of a bank’s internationalization process in which the firm relying on its own resources, such as capital, techniques, brand or management experiences through various investment modes to penetrate target country or region.

Motive for Internationalization: Focuses on the reason behind the decision by a bank to internationalize. In general, the progresses of economic advancement and integration, technology innovation and intensified competition motivate the internationalization of banks.

Government Policies: The policies of home and host countries that act as incentive or disincentive for internationalization such as trade reforms, liberalization and political support of the government.

Commercial Banks: refers to banks licensed to accept deposit from customers, which may be individuals or corporates and provide a payment transmission service, savings and loan facilities. It is different from a merchant bank to the extent that a commercial  bank is retail for basic banking needs, whereas merchant banks is wholesale for high net worth individuals and large companies. Commercial banks operate several branches while merchant banks maintain a branch or very few branches in major cities.


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