Question 26

Horizontal FDI describes a multiplant firm's expansion by duplicating the same activities in multiple countries.

Horizontal FDI occurs when a firm establishes identical or similar production facilities in different countries, aimed at serving the same market or customer base. This strategy allows the firm to increase its capacity and market presence across different geographical locations.

A) Brownfield FDI

Brownfield FDI involves acquiring or leasing existing facilities to start new production processes. This option is not correct in this context because it does not involve duplicating activities but rather utilizing pre-existing resources.

B) Vertical FDI

Vertical FDI refers to investments made by a firm in different stages of production, either backward or forward along the supply chain. This option is incorrect as it does not focus on duplicating the same activities but rather on different stages of the production process.

C) Horizontal FDI

Horizontal FDI is characterized by a firm replicating its existing business model and production processes in new countries. This definition perfectly aligns with the scenario described in the question, making it the correct choice.

D) Greenfield FDI

Greenfield FDI involves building new facilities from the ground up in a foreign country. While this could involve duplicating activities, it is not specifically defined as such, making it less precise than horizontal FDI in this context.

Conclusion

Horizontal FDI is the definitive answer as it directly addresses the scenario of a firm expanding by duplicating its activities in multiple countries. Other options, such as Brownfield and Vertical FDI, focus on different investment strategies that do not align with the concept of replication of the same operations, while Greenfield FDI, although similar, does not explicitly emphasize duplication. Thus, Horizontal FDI distinctly captures the essence of the firm's expansion model.