Business Degree Certification Practice Test

Which type of Foreign Direct Investment (FDI) focuses on acquiring resources at a lower cost than in the home country?

1. Market-seeking FDI

2. Efficiency-seeking FDI

3. Resource-seeking FDI

4. Strategic asset-seeking FDI

The correct answer is: Resource-seeking FDI

Resource-seeking FDI is focused on the acquisition of natural resources or raw materials that are available at a lower cost than in the investor's home country. Companies engage in this type of investment to secure inputs that are essential for their production processes, often looking for resources that may not be available domestically or may be significantly cheaper abroad. This strategy allows firms to enhance their competitiveness by reducing production costs and ensuring a stable supply of essential materials. For instance, a mining company might invest in a country rich in minerals to gain access to those minerals at a lower price than if they sourced them from more expensive markets. By tapping into these resources, businesses can optimize their operations and potentially increase their profit margins. The other types of FDI mentioned serve different purposes. Market-seeking FDI aims primarily at gaining access to new markets to increase sales. Efficiency-seeking FDI focuses on optimizing production and minimizing costs by relocating operations to areas with lower operational expenditures, including labor and logistics. Strategic asset-seeking FDI is about acquiring assets, technologies, or intellectual property that can enhance the firm's competencies or market position. While all these strategies can be beneficial, resource-seeking FDI specifically targets the lower cost of resources as a primary objective.