Backwards integration of UK companies in nigeria

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Most UK companies in Nigeria during the colonial era were in the primary sectors of agriculture and extractive industries and others in the service sectors such as finance and construction. UK companies easily dominated the Nigerian economy considering the colonial history of Nigeria. They enjoyed a major growth during the Nigerian oil boom of the mid 70s but the indigenization decree of the 70s saw the naturalisation of many of the companies, for example British Petroleum was changed to African Petroleum etc. (Faruquee, 1994)

The history of UK companies started with the advent of Royal Niger Company in Nigeria. According to US Library of Studies, it was a mercantile company that traded with the local people by buying their local produces which were exported to Britain. It was on this basis that modern Nigeria was established on whose wings colonialism strove which paved way for the establishment of other UK companies such as First Bank, Lever Brothers - later transformed to Unilever, United African Company, Cadbury, Barclays Bank- later transformed to Union Bank, Shell Petroleum and PZ Cussons etc.

However, the oil glut of early 1980s raised some questions about Nigerian economy which led to the introduction of Structural Adjustment Programme (SAP) and thus, the focus of public policy shifted to encouraging the local utilization of raw materials in Nigeria. As a result of this, manufacturers were encouraged to develop backward integration programs (Alos, 2000).

The economic difficulties in Nigeria in the 1980s forced the government to adopt IMF inspired Structural Adjustment Programme (SAP) (Obansa, 2005). One of the aims of SAP was to see an economy that is though liberalised but better, more dependent on local contents/inputs for its consumption (ibid). Firms were therefore encouraged to source their inputs/raw materials from within Nigeria to ease Balance of Payment (BOP) problems associated with excessive importation. This has been the doctrine of Nigerian economy since the introduction of SAP. This policy has led to the collapse and relocation of many industries from Nigeria due to poor operating environment and difficulties in getting local inputs. For example, Michelin and Dunlop have left Nigeria (ibid) while Belford is out of production. Many production lines of Unilever and PZ Cussons that are perceived not competitive have been relocated to neighbouring Ghana. For those firms still there has been long list of complaints.

Thus, the nature of the Nigerian industrial sector and the condition of Nigerian technology show that there is a very low input of raw materials produced in Nigeria and with a slightly greater use of its services. Currently and presently, backward integration in the context of linkages is most likely to be of marginal significance to the economy of Nigeria.

Therefore, given these definition and problems, together with data that are insufficient to support the claim that Backward Integration has a great impact in the economy of Nigeria, this proposal sets out as an empirical study in order to derive a conclusion to these problems and make some recommendations on how to minimise them.


The aims and objectives of this proposal are as follows:

To identify the relationship between SAP and Backward integration in Nigeria

To identify and assess the local contents in Nigeria context

To examine the effects of Backward integration on the economy of Nigeria

To assess backward linkages of UK companies with Nigerian firms

To examine the cost-effectiveness of backward integration in Nigerian economy

To make recommendations as a result of findings that will be made in the course of the study.


The research questions proposed for this study are as follows:

What are the relationships between SAP and backward integration in Nigeria?

Does backward integration affect Nigerian economy?

To what extend has backward integration helped increase the revenue of UK companies?

Are there incentives that encourage the growth and development of manufacturing companies to backward integrate in Nigeria?

According to Lyson and Farrington (2006: 39) backward integration looks for the best way to ensure that a business gets a continuous supply of resources by controlling or owning suppliers. Macmillan et al. (2009: 1) posits that the absorption of some of the activities carried out by a supplier tends to affect the strategic direction of the business. Backward integration is therefore, the movement of firm in the upstream direction to acquiring sources of supply (Krajewski et al.; Slack et al.; Hanfield et al., etc.). It is a strategy used by organizations in order to expand on the supply side network.

Though the definitions above have a common ground, which are acquisition or control of a supplier in order to have access to continuous supplies, but they can be considered too narrow. A broader or a more encompassing definition is provided by Obansa ( 2005) which defines Backward Integration as the degree to which an economy utilizes her locally available raw materials in order to conserve foreign exchange. It is the way by which an economy encourages her manufacturers to invest in local inputs for which they have no specialist knowledge.

Fukao (2000), while referring to backward integration in the context of local content, related it with back ward vertical linkages. He wrote that an Increase in backward linkages as measured by the local contents of manufacturing activities can be achieved by the extent to which organizations source materials from local suppliers or producers. Thus, backward integration can be seen as the process by which an economy integrate its agricultural and mineral sectors by making use of the resources generated for the production of secondary or tertiary products.

The benefits accrued to an organization that decides to backward integrate cannot be overemphasised. According to Hill (2005), backward integration eliminates or reduces transactional cost and improves operational efficiency.

However, backward integration cannot exist in a vacuum. It is predicated on the situation of an economy at a point in time. The infrastructural development of an economy is an important factor to consider when an economy is encouraging the implementation of backward integration (Cho, 2008). Currently, the problems of manufacturers have been complicated by the cost of doing business in Nigeria (NES, 1997; Alos, 2000). This ranges from the poor state of infrastructures to scarcity of petroleum. Even, in the midst of this, the Government is still encouraging Backward Integration.

According to Business day News (2009), the industries in Nigeria became dead shortly after Nigeria as an independent country in 1960s adopted an industrial policy of import substitution. Thus, the local manufacturers became assembly plants by putting spare parts and raw materials together to produce some products (ibid)

However, Nigeria in order to address its problem of oil boom and consequently import-dependent economy, backward integration and infrastructural decay, instituted SAP to open the economy to exports which brought about paradigm shift in the public policy for manufacturing industry in Nigeria and this enshrined Backward Integration in the system of Nigeria to improve the economic situations of the country (ibid). Backward Integration as it was being implemented is the utilisation of locally available raw materials in order to save foreign exchange. Therefore, manufacturers were required to backward integrate by initiating some programmes on which import licensing allocation is dependant and thus, they were forced to backward integrate by investing in the production of local products on which they had no much expertise (ibid). By and large, this programme could not endure for long. According to Obasa (2005), some organizations were able to manage it as a result of the technical supports they had, others failed and thus, became redundant.

Faruquee (1994) in assessing the effect of oil boom in Nigeria wrote that

''assembly-type activities that relied heavily on imports predominated in the manufacturing sector and contributed little to local value added or employment. Domestic valued added amounted to only 14 percent of the value of gross output, and more than two-thirds of raw material was improved. The export of manufactured goods was virtually non-existent. As foreign exchange became scarce, capacity utilization declined.''

The effect of SAP after its introduction was however positive though faced with so many challenges and incomplete. There was an increase in manufacturing output from 5.1percent in 1987 to 12.9 percent in 1988 as compared to a decline of 3.9 percent in manufacturing output in 1986 as a result of the significant growth given to local sourcing of domestic materials for the manufacturing of food and beverages, textile and clothing, soaps and detergent though other sub- sectors such as electronics and assembly did not perform well, however, this growth was short-lived. (Faruquee, 1994).

Nevertheless, the current economic environment of Nigeria has been characterised by low consumer purchasing power. While in 2006, the inflation rate was 17% at the end of the year, it fell back to single digits- 5% in 2008 (CIA World Book, 2010). Thus since 2008, there has been a slight increase in the inflation. According to the CIA World Fact figure for year 2010, Nigeria's inflation rate stands at 11% with more stable interest and foreign exchange which have had a stabilising effect on the economy. However, the macroeconomic foundation achieved thus far, has not given rise to the initiation of economic growth in Nigeria. By the end 2009, not only has capital utilisation become relatively stagnant, but it has reduced drastically as a result of lack of political will and economic drive of the Government to develop infrastructures responsible for improving economic growth.


The overall aim of this proposed study is to achieve the set objectives. This study will however be limited by the inaccessibility of research materials as related to existing literature on backward integration of UK companies in Nigeria. The limitation of fund for effective data collection may also contribute to this effect.

This study will also be limited as a result of the problems encountered during the proposed research. These may include the uncooperative attitudes of some respondents who may want to hide information for fear that it may be revealed to their competitors.

Though, this study focuses on Backward Integration of UK companies in Nigeria, it is not practicable to study all the UK companies in Nigeria. Any generalisation from the findings will only be limited to the specified companies.


This research work will be carried out based on the methods and procedures that will be used by the researcher and the specific framework on which it will rely on. This will ensure the validity and reliability of the data collected and analysed.

Given that this research is going to be carried out in two UK companies in Nigeria which are Unilever and PZ Cussons, there is a need to understand the right meaning of their culture and ethical values.

Therefore, the goal of this research is to present methods and techniques used in gathering data putting into utilisation the use of quantitative and qualitative research techniques. Both qualitative and quantitative methods will be used in order to give credibility to the conclusion of this research work.


This study will explore the effects of Backward Integration of UK Companies in Nigeria using Unilever and PZ Cussons as a case study. There are a lot of UK companies which have had a great deal of influence on Nigerian economy during and after the colonial period of the British in Nigeria of which Unilever and PZ are being chosen as a case study. But most of these manufacturing organizations are into production of products which raw materials or resources may not be sourced from Nigeria due to its technological backwardness. Unilever and PZ Cussons are majorly producers of household products in Nigeria. Greater parts of their raw material are or should be sourced locally. Therefore, the scope of this study will be limited to Unilever and PZ Cussons.


The research design that will be used for the purpose of this proposed study is quantitative and qualitative research design. The essence of this is to investigate research questions which have been outlined earlier in this proposal. The research questions which can be referred to as indicators are going to be used to prepare questionnaires on which basis presentation and analysis will be made. A form of qualitative research design will also be used to confirm the reliability of the data collected through quantitative design.


Data will be collected from both primary and secondary sources. The major aim of the researcher is to collect primary data to explore the areas where backward integration has affected Nigerian Economy positively and negatively. However, neglecting the secondary data will be impossible owing to its great relevance and its rich resources. The richness of secondary data in this proposed research work will make it easier to analyse the past development policies as regards backward integration and examine them in relations to present and future policies. Thus, the secondary data will include published and unpublished books, journals, government and non- governmental organizational documents etc.

Owing to the importance of the primary data, quantitative method will be used to collect data. These will include questionnaire and semi-structured interview. Thus, questionnaires will be distributed through emails to managers occupying sensitive positions that have direct or indirect contacts with backward integration. Therefore, the following key managers of the Organizations in which the study will be done will be contacted:

Senior Purchasing Managers: Senior purchasing managers are in charge of sourcing resources from suppliers thereby having direct contacts with them. Thus, they have information that may help analyse data in the course of this study

Senior Marketing Managers: They have little or no contact with suppliers but work hand in hand with senior purchasing managers and may contribute to decisions as regards to reaching agreements with suppliers or to acquire suppliers

Senior Accountant: They participate in decision making to backward integrate and pay money for acquisition of suppliers or purchasing supplies from suppliers.


Quantitative method of analysis will be used to address the questions raised methodologically as a result of the fact that most of the data will be gathered through questionnaire. The adoption of this method of analysis is due to the benefits of utilising every brief answer given by would be respondents.


To give credence to this research, semi structure interview will be administered to help confirm the reliability and validity of the data that will be gathered through questionnaire. Thus, information will be sourced from representatives of organizations that are not major participants of this research work but as a result of the fact that their organizations directly or indirectly have stakes in the backward integration of Nigeria.



Students are required to have refined the research topic area and research questions and begun work on literature review.


Students must submit a draft Literature Review Chapter and undertake preparation for primary research (including mapping out the research design and data gathering tools).


Students must submit a draft Research Design and Methods Chapter and progress with gathering of primary data.


Students are required to submit a draft of the Research Implementation Chapter.


Students are required to submit a draft of the Data Analysis and Conclusion Chapters


Students are required to submit a draft of the complete Dissertation


Students should be working on the final amendments to the Dissertation.