Where Have Foreign Banks in Nigeria Gone? The Impact of Local Competitors on MNEs Strategic Choices and Outcomes

Abstract

Privately owned Nigerian banks hold 94% of banking assets in Nigeria, the world's second largest share of local ownership, and the share had grown over time while it declined around the world. Theoretical explanations for the dominance of local firms related to liabilities of foreignness do not appear to apply to Nigeria banking industry; nor does the absence of pull factors that attract banks to Nigeria. To explain this puzzle we have adopted an exploratory study design, including extensive interviews with local and foreign banks in Nigeria and also examine Nigeria in regional and global perspectives. This exploration suggests that the entrepreneurial spirit of local banks, combined with nationalistic pride, have formed formidable barrier to the entry of foreign banks, deterring their entrance and undermining the market position of the few who entered. Nigeria government had played major role in this development, by instilling governance and ownership standards as well as by market structure and competition that have spurred the development of these capabilities. Such policy role signifies a distinct and unexplored means via which governments affect foreign entry and competitive dynamics after entry. We offer theoretical extensions to accommodate these features in the theory of the MNEs and outline implications for policy and firms. We highlight the merits of studying phenomena that are inconsistent with theories as an opportunity for theory extension and development.

Keywords: foreign and local banks, competition foreign and local firms, liability of foreignness, Nigeria, government policy and firms’ capabilities