Question

Determine whether each of the following cases is an example of 1)horizontal fdi 2) vertical FDI 3)offshoring. Explain your reasonings for each use. . IS THIS AN EXAMPLE OF HORIZONTAL FDI, VERTICAL FDI OR OFFSHORING

a) toyota motor corporation , a Japanese automative manufacturer. owns multiple manufacturing facilities in the US

.b) Apple Inc, an American technology company , hires Foxconn, a multinational electronics contract manufacturer, for assembling Iphones in China.

Answer 1

(a)

In the given case, it has been stated that Toyota has build many manufacturing plants across United States to make cars.

So, Toyota is undertaking the same activity (building cars) at various manufacturing plants set up by it in the United States.

When a firm builds manufacturing plants in other countries to undertake same activity at each manufacturing plant then such action of firm is regarded as the horizontal FDI.

So, by building manufacturing plants across United States to build cars, Toyota is engaging in horizontal FDI.

Thus,

The given case represents an example of horizontal FDI.

(b)

In the given case, Apple has entered into an contract with a foriegn firm (Foxconn) to let the foriegn firm assemble its flagship product (iPhone).

So, instead of directly undertaking the production, Apple has outsourced the production of the product to foriegn firm to be udertakne at foriegn location.

When a firm outsource the production of its product to foriegn entity at foreign location then firm is said to be engaging in offshoring.

Thus,

The given case represents an example of offshoring.