CHAPTER 2: LITERATURE REVIEW

2.0 Introduction

This literature study examines manufacturing companies' financial performance and

globalisation. This study investigates the impact of internationalisation on the financial

performance of manufacturing companies. This research review will illuminate how

internationalisation affects manufacturing organisations' financial performance. As an essential

backdrop for analysing the effects of internationalisation on financial performance, the study will

focus on internationalisation in Nigerian manufacturing enterprises (Hamza, Badejo and Adam,

2020). Policymakers and strategists must comprehend how internationalisation affects Nigeria's

industrial enterprises' financial performance.

International trade potential for manufacturing enterprises will also be examined. International

trade offers new markets, consumer bases, and comparative advantages. Global trade's benefits

for manufacturing enterprises can illuminate how internationalisation might boost financial

performance. Internationalisation's positive and negative effects on economic performance will

also be examined. Internationalisation can grow market share, revenue, and profitability but also

increase competition, expenses, and operational complexity. Internationalisation's impact on

financial performance must be assessed across all effects. Adopting internationalisation

strategies can enhance financial performance (Ikpor et al., 2022). It will explore

internationalisation techniques and best practices for manufacturing enterprises to improve

financial performance. These suggestions will help organisations optimise internationalisation

and improve financial performance.

2.1: To establish the Extent of internationalisation in manufacturing firms

Hamza, Badejo, and Adam (2020) found that eighty per cent of fifty Nigerian manufacturing

enterprises had launched international business activity, seeking an average of three abroad

markets. The survey found that export operations and FDI were the most common forms of

globalisation. When asked why they internationalised, organisations cited increased clientele,

access to new technology, and revenue diversification. These findings suggest that Nigerian

manufacturing enterprises have internationalised. Ikpor et al. (2022) examined the financial

reports of Nigerian manufacturing enterprises and found a tendency toward more international

subsidiaries over the past decade. The survey found that Nigerian manufacturers were

aggressively entering global markets through various channels. Greenfield investments, joint

ventures, and acquisitions were these methods. The data show that Nigerian manufacturing

enterprises want to expand globally.

Kurawa and Shuaibu (2022) interviewed top-level executives of Nigerian manufacturing

enterprises and found that the desire to access new markets and diversify revenue streams drove

internationalisation. The poll found that Nigerian manufacturing enterprises understand the

benefits of internationalisation, including market share, economies of scale, and competitiveness.

Internationalisation's cultural differences, regulatory complexity, and increased operating

expenses were acknowledged by management. The results show that Nigerian manufacturers

actively internationalise to profit on global markets, despite many challenges. These studies

show that Nigerian manufacturers have integrated much of their activities. The data show that

Nigerian manufacturing businesses are more interested in foreign markets, demonstrating that

they understand the benefits and opportunities of global expansion. The data also show the

challenges of internationalisation, emphasising the need for organisations to carefully plan and
manage their worldwide operations Hamza, Badejo and Adam (2020). Nigerian policymakers,

industry practitioners, and scholars must comprehend manufacturing businesses' internalisation.

It provides insights into Nigerian manufacturing sector internationalisation patterns and trends,

enabling informed policymaking and decision-making. This information also helps organisations

evaluate their internalisation efforts against industry norms and identify areas for improvement.

The findings contribute to the literature on internationalisation in Nigerian manufacturing and set

the framework for future research.

2.2: To identify the opportunities that international trade offers to firms

International trade plays a pivotal role in fostering economic progress as it enables enterprises to

expand their horizons. International commerce gives firms many options, including market

expansion, trade agreements, economies of scale, and specialization. Enterprises must effectively

manage policy consequences and constraints to benefit from international exchange.

International business is pivotal in enabling industrial enterprises to broaden their market reach.

Market instability impacts enterprises' revenue and profitability (Odo and Udodi, 2022).

Diversification makes them less vulnerable to regional economic changes. Enterprises can

innovate and compete by entering new markets and tapping into consumer tastes and wants.

Thus, these organisations can increase brand image, worldwide presence, and financial

performance.

International trade agreements facilitate market access for companies and reduce barriers to

trade. These agreements lower tariffs, quotas, and other trade barriers to make cross-border

commerce easier (Olayinka, 2021). Trade agreements help manufacturers enter new markets and

improve export competitiveness and financial performance. Trade agreements give

manufacturers preferential treatment, lower export costs, and easier access to international
markets, benefiting both exporters and importers. International commerce allows enterprises to

achieve economies of scale and specialization. To serve worldwide markets, enterprises can

spread fixed expenses over a broader output, lowering unit costs and improving profitability.

International trade lets companiesfocus on their competitive products and services.

Specialization boosts efficiency and quality, making manufacturing enterprises more appealing

to foreign clients (Olayinka, 2021). International trade enterprises benefit from economies of

scale and specialization, creating a virtuous cycle.

International enterprises that trade globally depend on governments and trade associations.

Policymakers must comprehend the potential of international commerce and create favorable

trade rules to encourage enterprises to explore other markets. Governments can boost economic

growth and industry by forging mutually advantageous trade agreements. To improve commerce,

officials should solve infrastructure, customs, and regulatory issues. International trade can boost

manufacturing investment, jobs, and competitiveness. International business offers tremendous

potential, but companies must overcome numerous difficulties to succeed (Odo and Udodi,

2022). The revenue and profitability of manufacturing enterprises are impacted by market

instability. The potential impact of exchange rate risk on export profitability should also be

considered. To effectively manage currency fluctuations risks, firms must engage in hedging

strategies and pursue market diversification.

Enterprises that are interested in engaging in foreign trade may encounter challenges related to

infrastructure and governmental factors. These limitations can disrupt the flow of goods and

services within supply chains, escalate the expenses associated with production, and cause delays

in the delivery of products (Ikpor et al., 2022). Successfully navigating challenging market

conditions requires proactive preparation, adaptability, and collaboration with local partners.
Through international trade, manufacturing enterprises can grow market share, revenue, and

worldwide competitiveness. Companies can succeed internationally through market expansion,

trade agreements, economies of scale, and specialization (Olowokudejo and Ajijola, 2022). The

facilitation of international trade for manufacturing enterprises is bolstered by the

implementation of supportive policies and the creation of an enabling environment by

policymakers. However, manufacturers must prepare for market instability, currency risk,

infrastructure constraints, and regulatory impediments. Enterprises may succeed in the global

market and boost economic growth by embracing opportunities and controlling threats.

2.3: Positive and negative effects of internationalisation on financial performance

Internationalisation offers enterprises several financial advantages, making it an appealing option

for economic improvement. These organisations can increase revenue, opportunity, and

profitability by entering global markets. Internationalisation helps manufacturing organisations

broaden their client base, reduce dependence on domestic markets, and capitalize on global

demand (Ikpor et al., 2022). Thus, they can mitigate country-specific economic risk and improve

financial resilience. Enterprises can expand their audience and market share by entering overseas

markets. They can present their products to consumers with varied tastes and needs, encouraging

innovation and adaptability (Olayinka, 2021). Thus, enterprises can build brand recognition and

global presence, increasing brand value and consumer loyalty. This brand image lets them charge

higher prices and make revenue sustainably. The internationalisation process enables

manufacturing enterprises to expand their operations and focus on specific areas of expertise.

They can cut average manufacturing costs to meet global demand by spreading fixed costs over a

broader output. Manufacturing organisations can optimize resources and increase efficiency by

focusing on competitive products or services. Cost reductions increase profit margins and
worldwide competitiveness, improving financial performance (Olowokudejo and Ajijola, 2022).

Internationalisation also lets manufacturers use trade agreements to lower trade obstacles.

Participating in these agreements helps them access overseas markets and diversify their exports,

increasing revenue. Eliminating or reducing tariffs, quotas, and import restrictions levels the

playing field for enterprises and improves the business environment for manufacturing firms.

Internationalisation has financial benefits, but manufacturing enterprises may need financial

assistance. Foreign market uncertainty, currency fluctuations, and political instability might harm

revenue streams. Economic success and global growth depend on managing these risks.

2.3.1. Positive effects

Internationalisation has many benefits for manufacturing enterprises, including financial

development and expansion. International commerce helps manufacturing organisations boost

profitability, access to new markets and consumers, competitiveness, risk diversification, and

access to resources and inputs. Manufacturing enterprises can profit from internationalisation.

Companies can increase revenue and customers by entering overseas markets. They may sell

more to a broader audience, boosting sales and profitability (Ikpor et al., 2022). Manufacturing

enterprises profit from new market opportunities. Internationalisation also helps manufacturers

scale up. They can spread their fixed expenses over more output to fulfill worldwide demand,

lowering average production costs. This cost decrease increases unit profit margins and overall

profitability. Manufacturing enterprises can improve financial performance and compete globally

using economies of scale (Olowokudejo and Ajijola, 2022). Internationalisation gives

manufacturing enterprises additional markets and customers. Expanding into overseas markets

diversifies consumer bases and reduces market dependence. Due to diversification, companies

are less vulnerable to regional economic changes. Manufacturing enterprises can innovate and

adapt by serving a broader customer base with various preferences and needs (Kurawa and
Shuaibu, 2022). They can customize products and services for international customers,

enhancing customer happiness and loyalty.

Entering new markets lets manufacturing organisations capitalize on unmet needs and

opportunities. They can enter markets with few competitors and become market leaders. Through

strategic market growth, manufacturing enterprises can capitalize on their strengths and

distinctive capabilities. Internationalisation makes manufacturing enterprises more competitive.

Companies enter new markets to compete and enhance their products, services, and operations.

Competitiveness drives innovation and development, improving financial performance.

Manufacturing enterprises might also compare themselves to overseas competitors (Ikpor et al.,

2022). They can gain competitiveness by adopting best practices and techniques from other

markets. This competitive edge improves financial performance and makes the manufacturing

firm more resilient to changing market conditions. Internationalisation also helps manufacturing

organisations diversify risks. Companies can lessen country-specific economic, political, and

regulatory changes by entering foreign markets.

Economic downturns or political instability in one market may not affect its financial success if

the corporation operates in numerous locations. Currency changes can affect a company's

financial outcomes in international trading. By earning in multiple currencies, companies can

reduce currency risk. Risk diversification shields the company from currency-related losses

(Kurawa and Shuaibu, 2022). Manufacturing enterprises need resources and inputs to

internationalize. Foreign markets provide companies with competitively priced resources and

supplies. Access to raw resources, labor, and technology can reduce costs and boost

manufacturing efficiency. A manufacturing company may locate cheaper and more abundant raw

materials in a foreign market, lowering production costs. It may also have access to trained
workers or innovative technologies to improve manufacturing and product quality. Access to

resources and inputs boosts the manufacturing firm's global competitiveness and financial

performance.

Internationalisation helps organisations improve their brand reputation, which affects customer

perception and financial performance. Internationalisation boosts brand reputation by expanding

globally. Manufacturing businesses achieve international recognition by entering foreign

markets. A brand that operates in numerous countries and serves varied consumer segments

gains trust and prestige (Hamza, Badejo, and Adam, 2020). Global brands are associated with

quality, reliability, and innovation, improving the company's customer image and products.

Internationalisation allows manufacturing organisations to accommodate varied cultural

backgrounds and tastes, creating inclusivity and customer-centricity. Companies demonstrate

their commitment to global clients by tailoring their products and services to their requirements

and preferences. Customers feel valued and understood by the brand, increasing loyalty and

positive word-of-mouth. A strong brand reputation affects customer perception and purchasing

decisions (Ikpor et al., 2022). Customers prefer brands with good reputations even if the products

or services are similar. Trustworthy, reliable, and customer-focused brand impressions boost

consumer loyalty and repeat purchases, sustaining financial performance.

Internationalisation can also raise prices and profit margins. As clients see the brand as having

more value and quality, manufacturing firms can charge higher fees. Premium pricing increases

revenue and profit margins, improving corporate financial performance. Internationalisation also

lets manufacturers reach new customers willing to pay extra for distinctive products and services.

Companies can attract niche customers that value their values, aesthetics, and exclusivity by

portraying themselves as premium global brands. Since the brand targets premium-paying
customers, this unique positioning can boost profit margins and profitability (Kurawa and

Shuaibu, 2022). Positive brand reputation and premium pricing can improve market share and

penetration. The brand increases market share as customers trust and prefer it over competitors.

This advantage can enhance sales and market share, improving financial success. Strong brand

reputations can also cushion economic downturns and market challenges.

Even with financial constraints, customers are more loyal to brands they trust and enjoy. Brand

loyalty can help the company weather economic uncertainty and emerge stronger. Investment

and partnerships depend on brand reputation. Internationalisation can lead to collaborations with

well-known businesses. Potential investors, partners, and distributors may be drawn to a

successful and trusted brand (Olowokudejo and Ajijola, 2022). Partnerships can provide market

access, distribution networks, and growth opportunities, improving financial performance.

Manufacturing enterprises must control their brand reputation during globalization. Negative

press or customer criticism can spread worldwide, damaging the brand's reputation. Thus,

manufacturing organisations must maintain brand messages, deliver on commitments, and

immediately address consumer grievances.

2.3.2. Negative effects

Internationalisation offers companies many opportunities and challenges that could hurt their

finances. It is imperative for enterprises seeking international expansion to conduct

comprehensive market research. Market research incurs significant expenses and requires a

substantial investment of time (Ikpor et al., 2022). Research, surveys, data gathering, and

analysis involve a lot of resources, and getting market data may take time. Market research can

be expensive, especially for smaller or medium-sized enterprises with tighter budgets. Market

research takes time, so a company may need more time to enter the international market and take
time-sensitive opportunities. Despite the considerable amount of research conducted, there is a

possibility of misinterpreting market dynamics. Economic, social, and political changes can

quickly change market demand and client tastes. Even with considerable study, a firm may still

experience unanticipated demand fluctuations, regulatory changes, or competitive issues that

affect financial performance and global expansion (Hamza, Badejo, and Adam, 2020).

Manufacturing organisations should use market research, adaptability, agility, and local market

knowledge to mitigate these challenges.

Businesses that want to go worldwide need a robust internationalisation strategy. However,

creating such a mechanism takes work. When a corporation expands internationally, choosing a

market is crucial (Olowokudejo and Ajijola, 2022). The corporation's commercial goals must be

considered while choosing target markets. Market size, growth, competition, and regulation must

be thoroughly analyzed to maximise financial results. Selecting the best entrance strategy—

exporting, licensing, joint ventures, or direct investment—is also tricky (Kurawa and Shuaibu,

2022). Businesses must assess their capabilities, risk tolerance, and desired control to choose the

best entry strategy. Selecting the improper entry method in the target market can hurt financial

performance. Customization of products is necessary due to internationalisation to meet the

unique requirements and tastes of regional markets. It can be pretty difficult to strike a balance

between brand consistency and localization. Poor sales and financial losses might result from

product modification failure. International pricing techniques present particular challenges. To

set prices, manufacturing enterprises must examine market conditions, competition, cost, and

customer perception. A company's financial performance depends on balancing profitable

operations and market competitiveness (Hamza, Badejo, and Adam, 2020). To reach target

clients, a solid distribution network must overcome hurdles. Manufacturing companies must
evaluate their distribution options and choose methods that efficiently distribute their products to

their target consumers. Strategic planning and execution are needed to overcome these

challenges and succeed in international markets.

Internationalisation exposes industrial enterprises to political and currency changes, hurting

financial performance. Currency exchange rate variations can affect cash flow, profitability, and

financial stability. Exchange rates can affect a company's revenue, expenditures, profit margins,

and financial performance. Manufacturing companies can mitigate currency risk using risk

management techniques like forward contracts, options, and currency swaps. Another risk is

political turmoil in a target market (Ikpor et al., 2022). Government laws, restrictions, and trade

agreements can disrupt corporate operations and affect financial success. Proactively monitoring

political events and policy changes in target markets can help companies anticipate and resolve

challenges. Strategic partnerships with local businesses can help manufacturing companies

navigate political challenges and reduce risks by providing insights into the political landscape

and regulatory needs (Olowokudejo and Ajijola, 2022). Supplying manufacturing company

information yields these benefits. Globally successful manufacturing organisations must use new

technologies and pursue innovative concepts. Embracing new technologies and encouraging

innovation can improve product development, production, and supply chains. New technologies

and inventive problem-solving methods can reduce costs, increase resource utilization, and boost

efficiency.

Automation, robots, and data analytics may streamline industrial processes, reduce labor costs,

and increase resource use. Financially efficient production and supply chain management can

boost productivity. Technology and innovation allow manufacturing enterprises to differentiate

their products in worldwide markets (Ikpor et al., 2022). By adding new features, intelligent
functions, or sustainable qualities to their products, companies can create unique value

propositions for international customers. Differentiating a product or service increases its

competitiveness, lets it charge a premium price, boosts profit margins, and improves financial

performance. Manufacturing organisations can increase their financial performance, profitability,

and market reach (Kurawa and Shuaibu, 2022). However, it raises difficulties that must be

addressed strategically to maximise benefits and minimize hazards. Manufacturing companies

can tackle market research challenges with flexibility and adaptation. Business

internationalisation requires strategic planning. Market selection, entry, product adaptation,

price, and distribution must be planned (Hamza, Badejo, and Adam, 2020). Risk management

and strategic alliances protect international markets against monetary and political volatility.

Adopting new technology and promoting innovation can boost operational efficiency, product

differentiation, and financial performance. Planned and proactive internationalisation can help

manufacturing organisations manage the adverse effects of global growth and capitalize on

globalization's opportunities to achieve sustained economic success in the competitive global

market.

2.4 Best practices on improving financial performance

Internationalisation offers manufacturing enterprises many chances to extend their market and

succeed globally. A comprehensive literature review and financial analysis of

internationalisation yield several vital recommendations to help manufacturing firms capitalize

on international trade, improve brand reputation, manage risks, and use technology and

innovation to improve financial performance (Olayinka, 2021). Conducting market research is

imperative before venturing into international markets. Understanding target market dynamics,

consumer preferences, and competition allows enterprises to adjust their products and services,
increasing customer happiness and financial success. The right market entry strategy—exporting,

licensing, joint ventures, or direct investment—is essential for competitiveness and profitability

in international markets. The achievement of global expansion is contingent upon formulating

and implementing an effective market entry strategy. Manufacturing enterprises must invest in

technology and promote innovation to compete globally (Ikpor et al., 2022). Automation, data

analytics, and robotics can improve manufacturing efficiency and lower costs. Monitor industry

trends and embrace new solutions to differentiate products, establish distinct value propositions,

and attract customers. Manufacturers prioritizing innovation are at the forefront of their

respective industries and experience sustainable growth.

Strategic alliances with regional companies in the target market must be formed in

internationalisation. Local partners offer access to shared resources, promote effective

distribution networks, and offer priceless market insights (Singh et.al, 2022). This can assist

companies in understanding local consumer preferences and market trends, easing market entry

and reducing political and regulatory risks. Strategic alliances can boost overseas financial

performance and set up long-term success. International manufacturers are required to handle

currency and political considerations effectively. Political instability and currency fluctuations

can impede business operations and cash flow. Currency hedging and diversification safeguard

financial performance from changes (Ikpor et al., 2022).

Organisations can protect their finances by watching political events and regulatory changes in

key markets. Expanding globally requires prioritizing fundamental competencies and strengths.

Organisations can optimize resource allocation and financial performance by exploiting key

capabilities and responding to foreign market difficulties. This strategic approach helps

organisations stay competitive and lead global markets. Manufacturing enterprises wanting
international success must build a strong brand reputation (Hamza, Badejo, and Adam, 2020).

Delivering high-quality items that meet client expectations can build trust and loyalty. Customer

referrals and word-of-mouth can boost brand reputation and income. Monitoring and responding

to customer feedback and reviews can increase the company's image and loyalty. Manufacturing

organisations must use strategies that match their goals and capabilities to profit from

internationalisation (Olayinka, 2021). Sustainable financial growth requires market research,

intelligent market entry, investment in technology and innovation, strategic partnerships,

currency and political risk management, and core skills. Manufacturing enterprises can build

brand loyalty and international success by focusing on customer satisfaction and brand

reputation. These research-based suggestions can help manufacturing organisations maximise

internationalisation and financial success.

2.5 The current gap in the literature

Although, there is a wealth of evidence on the relationship between internationalisation and the

financial performance of a firm. There is little information regarding how the internationalisation

impacts financial performance. Further, there is little evidence-based research on the

manufacturing sector. The work develops an original contribution by providing a unique

perspective on the relationship between internationalisation and financial performance of

manufacturing firms.