Question

Question 4 Suppose the POSCO company, Korean multinational company producing steel, decided to conduct mergers and acquisitions (M&As) of an Australian company producing iron ores by holding ordinary shares more than 50%. This is an example of __

a. Foreign direct investment and forward integration based on the product life cycle model.

b. Foreign direct investment and backward integration based on the product life cycle model.

c. Foreign direct investment and backward integration based on the internalisation theory.

d. Foreign direct investment and forward integration based on the internalisation theory.

Answer 1

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Question:

Answer:

c. Foreign direct investment and backward integration based on the internalization theory.

Explanation: Foreign direct investment (FDI) is an investment made by a company or individual in one country in business interests in another country, in the form of either establishing business operations or acquiring business assets in the other country, such as ownership or controlling interest in a foreign company.

Backward integration is a strategy used in FDI. If the company decides to enter into an alliance with a manufacturer or a supplier by way of acquisition or merger, this is called backward integration. This is done in order to achieve improved efficiency and cost savings.Backward integration is an instance the company acquire or merge with a supplier or manufacturer.

The internalization theory of multinational firms proposes that direct international investment occurs when a firm has information-related intangible assets with public good properties inns apparently lacking such assets experience at best zero abnormal returns upon announcing overseas acquisitions.Internalization theory focuses on imperfections in intermediate product markets.

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