Question

provide a clear distinction between horizontal FDI and Vertical FDI. Support your answer by providing real examples for both Horizontal and Vertical FDI (long answer)

Answer 1

In the past, maiFDI was mainly a one way process, constituting one of the economic aspects of European imperialism and colonization of new territories in the contemporary world,however FDI investments take place at a global level within Complex networks. FDI can be divided into a number of different subcategories, based upon different criteria .one of the categorisation differentiate between vertical FDI and horizontal FDI.

Horizontal FDI refers to an activity where by an organisation invest in a business that operates in the same industry as itself. An example of horizontal FDI would be national Australia Bank's takeover of the UK clydesdale Bank. In addition to being set in an intra- industry context, horizontal FDI has until recently taken place by and large between developed countries. However contemporarily examples are found of new players in the IB field from emerging economies participating in FDI in the developed economies, such as Indian Tata Steels purchase of Anglo Dutch chorus in the steel industry and Chinese Lenovo acquisition of the PC division of IBM -the company that invented personal computers.

In contrast to horizontal FDI, the vertical FDI may be inter industry, where by one organisation seeks to prepare sources of materials or components for its own products, or support services that underpin its market offerings. Vertical FDI will often set in the context of developed -to-developing economy investment, where by the home company often seeks to drive down the cost of doing business by exploiting lower wage operations in the host country. An example of vertical FDI is the investment by UK service industries in call centres in India..

The distinction between horizontal and vertical FDI has important implication for the FDI recipient countries. In the hope of increasing economic advancement, many developing countries initiative policies to attract FDI, with the expectation that this will result in increased employment and technological spillover. However these positive effects are more likely to Occur in the case of horizontal rather than vertical FDI. Since vertical FDI often involves in locating the production of technologically simple and low -skilled labour intensive elements in countries that are abundant in low skilled labour, it has much lower potential for generating spillovers and linkages.

But Most studies of multinational activity that use overall affiliate activities in a particular host country as the unit of observation conclude that the pattern of fDI is largely consistent with the theory of FDI, but not with the theory of vertical FDI.