FDI\'s according to their typology, can be divided into 1 horizontal and vertica
ID: 1194468 • Letter: F
Question
FDI's according to their typology, can be divided into 1 horizontal and vertical 2 inward and outward 3 portfolio investment and greenfield. Classify the following cases according to the above parameters:
a. Huawei (a Chinese corporation) opens up factory in Indonesia
b. Samsung (a Korean chaebol) acquires a minority stake in Japanese stylus maker Wacorn.
c. Geely (a Chinese multinational auto manufacturer) opens some new dealerships in the UK, after having acquired the Swedish Volvo.
d. Unilever (an Anglo-Dutch corporation and one of world's main producers of health-care and food products) builds a new production factory in Thailand to produce for regional markets in ASEAN.
Explanation / Answer
Horizontal FDI is the one where a firm opens up almost similar processes overseas in multiple locations. On the other hand, under Vertical FDI a firm locates different stages of production in different countries.
Inward and outward FDI classification is based on the point that which country are we considering as home or domestic country. Any FDI flows coming in the Home from other countries constitute inward FDI. Those flows of investment which the domestic country is spending overseas represent Outward FDI.
Portfolio investment means that the foreign firm has bought stake in the domestic company by buying securities or stocks but without earning any mangerial or ownership or voting rights. Greenfield investment means that the foreign firm has opened up in the other country altogether new operations with full ownership rights and control over brand, staff, etc.
(a) Huawei (a Chinese corporation) opens up factory in Indonesia
This will be classified as greenfield investment as the Huawei opened up a new factory in Indonesia.
(b) Samsung (a Korean chaebol) acquires a minority stake in Japanese stylus maker Wacorn.
This will come under portfolio investment as Samsung is acquiring a minority stake in Wacorn. Minority stake means a small share in stocks without having to get the vting or ownership rights.
(c) Geely (a Chinese multinational auto manufacturer) opens some new dealerships in the UK, after having acquired the Swedish Volvo.
Acquisition of Swedish Volvo which is also an auto manufacturer is an example of horizontal acquisition and the opening up of new dealerships by Geely in UK is an example of Vertical FDI as manufacturer is opening up the next stage in UK.
(d) Unilever (an Anglo-Dutch corporation and one of world's main producers of health-care and food products) builds a new production factory in Thailand to produce for regional markets in ASEAN.
Building up a new production factory in Thailand by Unilever to produce for regional markets in ASEAN constitutes a horizontal FDI. As the firm is opening roughly the same process at different location with the intentions to serve a particular region.
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