IBUS90003 Chap.5 FDI Motives, FDI Types and MNE Archetypes
FDI Motives, FDI Types and MNE Archetypes
Week 3 turns from whether firms invest abroad to why they do it and how they organise once there. The chapter begins with the three types of FDI: horizontal investment repeats the home stage of production in another country, vertical investment adds a stage closer to raw materials or closer to the customer, and conglomerate investment adds an unrelated business. Behind these types sit three generic motives.
Market-seeking firms want to sell abroad, stay close to customers, adapt products and get behind trade barriers, sometimes following rivals or customers or responding to incentives. Resource-seeking firms want physical resources, plentiful labour or specialised skills at lower cost or higher quality than home can offer, and their investments are often large, sunk and hard to reverse.
Strategic-asset-seeking firms buy or partner with other firms to gain technology, brands, market access or synergies. Real firms often pursue several motives at once, act aggressively or defensively, and change motives over time. The second half of the chapter introduces four MNE archetypes that describe how firm-specific advantages are used across borders.
A centralized exporter embeds its advantages in products made at home; an international projector transfers a home recipe to subsidiaries; an international coordinator gives different hosts different specialised roles and links them through logistics; a multi-centered MNE lets entrepreneurial subsidiaries build their own local advantages with little shared beyond finance and identity.
Hollywood studios, Uber and McDonald's, Boeing and Philips are the seminar's examples, and the lesson is that no single model is best.
What this chapter covers
- 01
Horizontal, vertical and conglomerate FDI
- 02
Market-seeking objectives and import substitution
- 03
Physical, labour and skills-based resource seeking
- 04
Strategic asset seeking through acquisition
- 05
The centralized exporter and the international projector
- 06
The international coordinator and Boeing's supply chain
- 07
The multi-centered MNE and local responsiveness
Worked example · free
Classify a car parts group's foreign investments
- 2The wiring harness plant adds an upstream stage to cut labour costs, so it is vertical FDI with a resource-seeking motive.
- 2The factory behind the tariff wall produces what the group already makes to serve local customers, so it is horizontal FDI with a market-seeking motive.
- 2The battery start-up is bought for its patents and knowledge, so it is strategic asset seeking through acquisition.
Key terms
- Horizontal FDI
- Investment that carries out the same stage of production abroad as the firm performs at home, usually to serve a foreign market.
- Vertical FDI
- Investment that adds a stage of production abroad, either backward towards raw materials or forward towards the market.
- Strategic Asset Seeking
- FDI aimed at acquiring knowledge, brands, technology or market access from other firms, usually through acquisition, merger or joint venture.
- International Coordinator
- An MNE archetype that gives different host countries specialised value-added roles and links them into one cross-border value chain.
- Multi-Centered MNE
- An MNE archetype built on entrepreneurial subsidiaries that develop their own local advantages, with only core routines shared across the group.
FDI Motives, FDI Types and MNE Archetypes FAQ
Can one firm pursue several FDI motives at the same time?
Yes. Larger MNEs commonly combine market, resource and strategic asset seeking, and their motives shift over time as competitors move, governments change policy and the business matures into new markets.
Why are resource-seeking investments called sticky?
They usually involve large sunk outlays, such as mines or plantations, that cannot easily be moved or sold, so political risk and regulatory stability weigh heavily in the decision.
What separates an international projector from a multi-centered MNE?
A projector sends its home success recipe to every subsidiary and builds little that is local, while a multi-centered MNE lets each national unit develop its own products and local know-how.
Which MNE archetype is the best one to adopt?
None is best in general. The right archetype depends on the firm's advantages, how well they fit host-country location factors and the motive behind the investment, so the same firm may need a different model in a different market.
Exam move
Learn this chapter as two linked classification tools. For the FDI tools, write the three types and the three motives in a grid and practise placing real investments in it, using the seminar's own illustrations such as Japanese and Chinese resource investments, call centres in India and listening posts in key markets.
For the archetypes, draw the two-dimension map from memory: whether home advantages are formally transferred to subsidiaries, and whether subsidiaries build their own host-specific advantages. Put Hollywood studios, Uber, Boeing and Philips in their cells and write one sentence on why each belongs there.
When you revise with the exam case in mind, ask two questions of the case firm: why did it go abroad, and how does it use its advantages across countries? The answers usually reveal whether its organisation fits its markets. Finish by writing a short paragraph on the Amazon retail lesson, that multi-domestic industries need local scale, because it connects motives, archetypes and location choice in one argument.
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