Vertical Integration

this paper will be analyzing. The most important concept to understand is foreign direct investment. Foreign direct investment is defined as “an investment made by a company or entity based in one country, into a company or entity based in another” (Investopedia). This can be carried out in a variety of ways. One way foreign direct investment can occur is if the parent company, the company doing the investing, purchases enough common stock from a foreign company in an effort to gain voting control within said company. Other ways that FDI can be carried out include the parent company building a new plant within the foreign nation, or by further investing in an already existing foreign plant. A company that engages in foreign direct investment

Vertical integration can occur through both backward and forward integration. Backward integration occurs when a parent company invests in a subsidiary that is involved with the inputs for their product, so they are moving backward through the supply chain. Anytime a company invests in a firm that produces works with extracting/refining the raw materials for their product they are participating in backward integration. A real world example of backward integration would be within the oil industry, where production subsidiaries are located in the middle east while it is then refined and marketed in western countries. The other form of vertical integration is forward integration. This occurs when the parent company invests in a foreign subsidiary that produces or markets a product that is closer to the final consumer market. Forward integration does occur in some markets, however it is not as common as backward

This occurs when the parent company will diversify and invest in a firm that produces for a completely different market than the parent company. The main purpose of conglomerate integration is the giving the business the opportunity to penetrate new markets. This form of integration also gives firms more opportunities for continued growth as well as the benefit of having their risks more spread out. A real world example of conglomerate integration would be ExxonMobil investing in a foreign copper mine in Chile. There are a variety of motives that can lead to foreign direct investment taking place. The motivation for the recipient country to allow FDI include the opportunity for potential economic growth as well as job creation. FDI often comes with the added benefit of better management as well as improvements in technology. Foreign direct investment has also been shown to lead to an increase in labor productivity as well as an increase in wages for workers within the host country. For the parent company doing the investing, the biggest motive is the opportunity to capture potential future