As a type of foreign investment, foreign direct investment (FDI) is divided into three principle categories: horizontal, vertical, and conglomerate. A horizontal FDI pertains to an investor establishing a new company in a different country. This new company has the same type as the one in the origin country. An example of this would be a cell phone brand from the US opening stores carrying the same brand in countries in Asia. A vertical FDI involves a company establishing a different company in a different country but the two are connected with each other in a way. For example, a manufacturing company may invest in a supply company located in other countries to obtain raw materials for the former to operate.
A conglomerate FDI is when an investor (company or individual) invests in a different country but the business form is different from the one in the investor’s country. The two are totally unrelated in any ways. A conglomerate FDI often takes form of a joint venture due to the fact that the investor may not have experience in the area of business they invest in. The investor may have just got into a type of business so they do not have prior knowledge on anything related to the area. A joint venture provides a safe spot to bounce back should anything go south.
FDI and the laws related to it is important to a company’s overall development. An expansion of FDI may boost the recipient country’s economic growth as a whole. FDI is also a smart move taken by both parties (investor and recipient) to improve respective markets. Investing party can enjoy expansion of sales toward global market while receiving party may enjoy a boost in profit and share. Targeted market can enjoy similar advantage as products and services are more diverse and widely available.