Which one of the following scenarios is least likely a case of horizontal FDI?Group of answer choicesAn American car manufacturer acquiring production facilities in GermanyA Chinese tech company buying a research centre in GermanyA Chinese car manufacturer acquiring production facilities in VietnamAn American tech company buying a British computer chip designing firm
Question
Which one of the following scenarios is least likely a case of horizontal FDI?Group of answer choicesAn American car manufacturer acquiring production facilities in GermanyA Chinese tech company buying a research centre in GermanyA Chinese car manufacturer acquiring production facilities in VietnamAn American tech company buying a British computer chip designing firm
Solution
Horizontal Foreign Direct Investment (FDI) refers to a business strategy where a firm establishes the same type of business operation in a foreign country as it operates in its home country. This is often done to access new markets or reduce costs.
Let's analyze each scenario:
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An American car manufacturer acquiring production facilities in Germany: This is a case of horizontal FDI because the American car manufacturer is expanding its car manufacturing business to Germany.
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A Chinese tech company buying a research centre in Germany: This is a case of horizontal FDI because the Chinese tech company is expanding its tech business to Germany.
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A Chinese car manufacturer acquiring production facilities in Vietnam: This is a case of horizontal FDI because the Chinese car manufacturer is expanding its car manufacturing business to Vietnam.
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An American tech company buying a British computer chip designing firm: This could be considered a vertical FDI rather than a horizontal FDI. In a vertical FDI, a company invests in a foreign country by moving to a different level of the supply chain. Here, the American tech company (which we can assume is involved in tech production or services) is buying a British computer chip designing firm, which is a different level of the supply chain (designing and production of computer chips).
Therefore, the scenario that is least likely a case of horizontal FDI is "An American tech company buying a British computer chip designing firm".
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