Question

Apple contracts Foxconn, a Taiwanese company, to manufacture components for iPhone. Apple’s relationship with Foxconn is considered a(n) _____.

	a.	horizontal FDI
	b.	captive sourcing
	c.	offshoring
	d.	downstream vertical FDI

Answer 1

Answer: (c) offshoring

Offshoring is the relocation of a business process from one country to another—typically an operational process, such as manufacturing, or supporting processes, such as accounting or manufacturing components. One may confuse between offshoring and captive sourcing. But there is a difference. A captive involves establishing and operating some form of a partly/ wholly owned entity overseas, whereas offshoring encompasses leveraging the capability of a third-party service provider to deliver the same work.

On the other hand, Horizontal FDI occurs when a company initiates a similar operation or business model in another country. Vertical foreign direct investment occurs when a multinational acquires an operation that either acts as a supplier or distributor.

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