Types of Foreign Direct Investment.....

Foreign direct investments are commonly categorized as being horizontal, vertical or conglomerate.....

 

A horizontal direct investment refers to the investor establishing the same type of business operation in a foreign country as it operates in its home country, for example, a cell phone provider based in the United States opening stores in China.

A vertical investment is one in which different but related business activities from the investor's main business are established or acquired in a foreign country, such as when a manufacturing company acquires an interest in a foreign company that supplies parts or raw materials required for the manufacturing company to make its products.

A conglomerate type of foreign direct investment is one where a company or individual makes a foreign investment in a business that is unrelated to its existing business in its home country. Since this type of investment involves entering an industry in which the investor has no previous experience, it often takes the form of a joint venture with a foreign company already operating in the industry.
 

Example of Foreign Direct Investments

Examples of foreign direct investments include mergers, acquisitions, retail, services, logistics, and manufacturing, among others. Foreign direct investments and the laws governing them can be pivotal to a company's growth strategy.

In 2017, for example, U.S.-based Apple announced a $507.1 million investment to boost its research and development work in China, Apple's third-largest market behind the Americas and Europe. The announced investment relayed CEO Tim Cook's bullishness toward the Chinese market despite a 12% year-over-year decline in Apple's Greater China revenue in the quarter preceding the announcement.

China's economy has been fueled by an influx of FDI targeting the nation's high-tech manufacturing and services, which according to China's Ministry of Commerce, grew 11.1% and 20.4% year over year, respectively, in the first half of 2017.3 Meanwhile, relaxed FDI regulations in India now allows 100% foreign direct investment in single-brand retail without government approval. The regulatory decision reportedly facilitates Apple's desire to open a physical store in the Indian market. Thus far, the firm's iPhones have only been available through third-party physical and online retailers.