What is the primary focus of vertical FDI?

Vertical foreign direct investment (FDI) primarily focuses on integrating and managing different stages of production across various geographical locations. In this model, a company may invest in facilities that handle different parts of the supply chain, such as sourcing raw materials, manufacturing components, and assembling final products in different countries. This approach allows the investing company to enhance control over its production process, reduce costs by optimizing supply chain management, and improve efficiency through strategic partnerships and local capabilities.

By engaging in vertical FDI, a company can better manage its input costs, improve its overall competitiveness, and create a more resilient operational structure. This strategy contrasts with other business models, which might emphasize maintaining a static operational structure, focusing solely on marketing, or diversifying financial investments without a direct correlation to production processes. Vertical FDI helps companies adapt to market changes and consumer demands by having localized production capabilities at various stages.