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Business Administration QUESTION #9580
Question 1
Which of the following most accurately distinguishes 'horizontal FDI' from 'vertical FDI' in terms of the strategic logic driving each?
  • Horizontal FDI is driven by cost-reduction through cheap labour; vertical FDI is driven by market access in the host country
  • Horizontal FDI replicates the same production activity in the host country to serve local markets and avoid trade barriers; vertical FDI fragments the value chain by locating different production stages in countries where each stage enjoys comparative advantage✔️
  • Horizontal FDI requires greenfield investment; vertical FDI exclusively uses mergers and acquisitions as entry mode
  • Horizontal FDI targets developed countries for technology transfer; vertical FDI targets developing countries for resource extraction
Correct Answer Explanation
Horizontal FDI duplicates home-country operations abroad to serve foreign markets directly — bypassing tariffs and transport costs (market-seeking). Vertical FDI decomposes the value chain and offshores specific stages to locations with factor cost advantages (efficiency-seeking). This distinction is foundational to understanding multinational strategy and directly answers why Pakistan attracts different FDI types in different sectors.