Vertical FDI Essay

The strategy of FDI comes in two ways based on its parent firm manufacturing as Vertical FDI and Horizontal FDI (Lipsey, 2003). Horizontal FDI refers to goods and services of foreign production, which likely relevant to those manufactured companies in its home country. Horizontal FDI is the firm does the same activities aboard. This type of foreign investment arises due to goods is too expensive to export oversea because of the barriers in transportation cost or trade regulation. In contract, Vertical FDI concerns to those global firms that fragment production procedure geographically. This foreign investment method divides the production chain perpendicularly whereby outsourcing some production stages oversea. The fundamental concept of this approach is that a manufacturing system includes at various stages with different input needed. Therefore, if the input costs are varied across the region, it can be able to gain some profits for the company to divide the manufacturing chain (Lipsey, 2003). Vertical FDI divides into two categories know as backward and forward (Figure 1). Regarding backward FDI,

The distinguish between merger and acquisition, and Greenfield Investments is that Greenfield Investment connects to origination a new asset in the host country. Meanwhile, Merger and acquisition are concerned about changing the ownership of the old asset which does not create a new asset in the short-term period. Moreover, joint venture can be taken another form of investment. In particularly, the firm operates the same businesses activity in the host region or to conduct some entirely new business (Easson,