The Effect of Digitalization on the Performance of Manufacturing Firms in South-West Nigeria

Abstract

Adopting digitalization by manufacturing firms will increase and improve output and generate 
additional employment for downstream skilled labour in the production process. However, 
there is the possibility of job loss, affecting unskilled workers the most. The Nigerian 
manufacturing sector must undergo critical structural changes (dynamic shifts caused by 
technological innovation) required to drive economic growth and development. This study 
examines the effect of digitalization on the performance of manufacturing firms in South-West 
Nigeria using a sample of 45 randomly selected medium- and large-sized manufacturing firms 
across Oyo, Ogun, and Lagos states. The study employed the Ordinary Least Square and 
descriptive analytical techniques to analyze the data collected. The results revealed that 74.3% 
of firms upgrade their digital machines as needed, while over 50% have only minimally 
digitalized their work structures, operations, and production processes. This limited 
digitalization affects their competitiveness and revenue generation, impacting overall 
economic growth. Digitalization efforts focus on digital communication equipment for work 
structures and operations, with less emphasis on production processes that drive productivity. 
The regression results showed that digitalization had no significant effect on the performance 
of manufacturing firms, likely due to the low level of digitalization in their processes and 
operations. The study recommends upgrading employees' skills, especially digital skills, as 
labour significantly affects manufacturing output. Skills upgrades will help the sector adapt to 
new technologies, enhancing revenue and competitiveness.