Question

Determine whether each of the following cases is an example of i) horizontal FDI, ii) vertical FDI or iii) offshoring. Explain your reasoning for each case. a. Toyota Motor Corporation, a Japanese automotive manufacturer, owns multiple manufacturing facilities in the US. b. Apple Inc., an American technology company, hires Foxconn, a multinational electronics contract manufacturer, for assembling of iPhones in China.

Answer 1

(a)

Toyota Motor Corporation, a Japanese automotive manufacturer, owns multiple manufacturing facilities in the US.

In this case, Toyota builds entire cars at each of its manufacturing facility in the US.

This implies that Toyota is duplicating same activity (building cars) at each of its plant in US.

When a firms builds production facilities in various countries that perform same set of activities then such firm is undertaking the horizontal FDI.

So,

The given case is an example of horizontal FDI.

(b)

Apple Inc., an American technology company, hires Foxconn, amultinational electronics contract manufacturers, for assembling of iPhones in China.

In this case, Apple is not undertaking any manufacturing on its own. Instead, it has given contract to a foriegn firm to produce its product at a foriegn location.

When a firm engages a foriegn firm to produce its product at a foriegn location then it is said to be engaging in offshoring.

So,

The given case is an example of Offshoring.