Question

For each of the following, specify whether FDI is horizontal or vertical; in addition, identify the parent and host in each case.

a. McDonald’s (a U.S. multinational) opens up and operates new restaurants in Europe.

b. Total (a French oil multinational) buys ownership and exploration rights to oil fields in Cameroon.

Answer 1

(a) McDonald's opens up and operates new restaurants's in Europe:

• (i) Since McDonald's is investing and expanding in the same line of business in the same stage of value chain (fast food restaurant) in Europe, this is a Horizontal FDI.
• (ii) This is an Inflow of FDI in Europe, because foreign investment is coming in.

(b) Total buys ownership and exploration rights to oil fields in Cameroon:

• (i) Since Total has invested in a line of business that is same (oil), but is in a different stage of value chain (oil fields), this is a Vertical FDI.
• (ii) This is an Inflow of FDI in Cameroon, because foreign investment is coming in.