UGC NET COMMERCE December 2018 Q87
| LIST-I | LIST-II |
| (a) Direct investment overseas aimed at manufacturing products not manufactured by the firm in the home country | (i) Inward FDI |
| (b) Direct investment in a foreign country aimed to sell the output of the firm’s domestic production. | (ii) Backward Vertical FDI |
| (c) Direct investment overseas aimed at providing inputs for the firms production process in the home country | (iii) Conglomerate FDI |
| (d) Foreign firms investing overseas and taking control over foreign assets | (iv) Forward Vertical FDI |
CODES
| (a) | (b) | (c) | (d) | |
| 1 | (iv) | (iii) | (ii) | (i) |
| 2 | (iii) | (iv) | (ii) | (i) |
| 3 | (i) | (iv) | (ii) | (iii) |
| 4 | (iii) | (ii) | (i) | (iv) |
- Option : B
- Explanation : Types of FDI
We distinguish between horizontal and vertical FDI. Horizontal FDI occurs when the MNE enters a foreign country to produce the same product(s) produced at home (or offer the same service that it sells at home). It represents, therefore, a geographical diversification of the MNE’s domestic product line. Most Japanese MNEs, for instance, begin their international expansion with horizontal investment because they believe that this approach enables them to share experience, resources, and knowledge already developed at home, thus reducing risk. If FDI abroad is to manufacture products not manufactured by the parent company at home, it is called conglomerate FDI. For example, Hong Kong MNEs often set up foreign subsidiaries or acquire local firms in Mainland China to manufacture goods that are unrelated to the parent company’s portfolio of products. The main purpose is to seize emerging-market opportunities and capitalize on their established business and personal networks with the mainland that Western MNEs do not have. Vertical FDI occurs when the MNE enters a foreign country to produce intermediate goods that are intended for use as inputs in its home country (or in other subsidiaries’) production process (this is called “backward vertical FDI”), to market its homemade products overseas, or to produce final outputs in a host country using its homesupplied intermediate goods or materials (this is called “forward vertical FDI”). An example of backward vertical FDI is offshore extractive investments in petroleum and minerals. An example of forward vertical integration is the establishment of an assembly plant or a sales outlet overseas.
