Business Degree Certification Practice Test

What type of foreign direct investment do most Japanese MNEs start with to share experience and resources, reducing risk?

1. Conglomerate FDI

2. Vertical FDI

3. Horizontal FDI

4. None of the above

The correct answer is: Horizontal FDI

The correct answer is horizontal foreign direct investment, which refers to a strategy where a multinational enterprise (MNE) expands its operations into a foreign country at the same level of the value chain. For Japanese MNEs, starting with horizontal FDI allows them to replicate their successful business model and practices in a new market while sharing experience and resources with local operations. This approach helps in minimizing risk as it leverages existing expertise and operational efficiencies. Horizontal FDI allows companies to produce similar goods or services abroad as they do at home, which can lead to optimized production processes and enhanced market presence. It also facilitates a better understanding of consumer preferences in diverse markets, allowing for tailored strategies that can effectively capture local demand. By entering foreign markets horizontally, Japanese firms can effectively manage risks associated with new market entry while also benefitting from economies of scale.