Introduction
This paper is an attempt to summarize The Impact of Foreign Direct Investment on Horizontal Export Diversification: Empirical Evidence Published in 2013 by Bedassa Tadesse and Elias K. Shukralla. In this article by Tadesse and Shukralla (2013) they postulate that a country’s willingness to trade under suitable conditions can lead to a country’s growth but it must have the proper structural transformation because relying on exporting has many weaknesses. Tadesse and Shukralla (2013) found that the impact of Foreign Direct Investment (FDI) did enhanced the horizontal diversification of exports.
Here it is important to explain some definitions used by Tadesse and Shukralla before continuing. Horizontal diversification is the acquisition or merger of competitors in a same, similar or different business (Hitt, Ireland, & Hoskisson, 2015). Foreign Direct Investment (FDI) is an investment made by a company or entity based in one country, into a company or entity based in another country (Investopedia, 2003).
Purpose
The Purpose of the research by Tadesse and Shukralla’s (2013) pertains to the diversification of exports. These authors considered this method as a “sine qua non for an export-led economic growth strategy” (p. 142), which means, FDI is absolutely necessary for a country that exports. These authors noted that there is much literature examining the FDI but not much on studies directly linking FDI with export diversification. These authors’ further stated
Horizontal refers to the idea of one firm joining with another at the same stage of the same production process. It also allows for greater market share; achieves economies of scale; and an opportunity to enter a different market segment. An example of this would be Ford’s takeover of Volvo - both being car manufacturers.
There is no doubt that increasing in international trade is supporting the economic growth across the world, raising incomes and creating jobs. However, international trade can also some create economic obstacles, such as the international context and the market policy and regulations of each country, and consequently it can be said that the effects would have positive and negative sides, and it is useful to mention all of them and to take them into consideration.
Horizontal integration involves buying out other companies and taking over one single step of an industrial process. It establishes a monopoly because, with horizontal integration, everyone must go the company that has monopolized that step.
Recent progresses in the international business literature note down that multinational enterprises (MNEs) have a tendency to be more regional than global, in terms of width and strength of their market covering, and that the majority of their international action is conduct within their home regions. In agreement with the regionalization theory, this suggest that the responsibility of intra-regional expansion is much lower than the responsibility of inter-regional expansion; that is, the LOF is higher if entering into other globe area relation to expanding within the home area. on one hand some studies argue that threat diversification benefits from worldwide expansion are restricted when multinational firms follow concerted regional strategies, due to similarity in economic basics and exposure to common threat factors within the sections. On the other hand, other studies focusing on MNEs which is account a linear positive influence of intra-regional diversification on implementation. According to these studies, cost economies and effectiveness benefits are more probable to occur throughout intra-regional expansion, due to home region resemblances in terms of geography, economics, organizations and policies, and spatial closeness. despite the fact that low to moderate level of inter-regional diversification give up a positive profits to MNEs, higher level of inter-regional diversification consequence in diminishing
1. Horizontal Mergers: Horizontal mergers happen when a company merges or takes over another company that offers the same or similar product lines and services to the final consumers, which means that it is in the same industry and at the same stage of production. Companies, in this case, are usually direct competitors. For example, if a company producing cell phones merges with another company in the industry that produces cell phones, this would be termed as horizontal merger. The benefit of this kind of merger is that it eliminates competition, which helps the company to increase its market share, revenues and profits.
It is process of a company taking over another offering same products or services that origi-nal company offers. Companies are in same line of business. Often competitors can be the target companies. Major motives for such mergers could be the economies of scale and en-hancement of market power with the reduction in competition (Arnold 2002). A merger of Walt Disney and Lucas Film in October 2012 is an example of Horizontal Mergers.
A horizontal merger is a merger between companies which operate in the same business field and they share the same product lines as well as markets. The obvious result of this deal is the expansion in market share, reduction in fixed costs and increase the efficiency of distribution channel and logistics. Usually, horizontal mergers are common in the industries where competition is intensive and the potential gains of market share are
Latin America may therefore include FDI as a key component of their modernization strategy, because of the potential benefits FDI is likely to generate to their economies. In particular, Latin American
In many cases, multinational corporations conduct horizontal foreign direct investment (FDI) activities in order to expand their operations into another market. For example, an American retailer that builds a store in China is trying to earn more money by exploring the Chinese market. Vertical FDI, on the other hand, occurs when a multinational decides to acquire or build an operation that either fulfills the role of a supplier (backward vertical FDI) or the role of a distributor (forward vertical FDI).
Mergers and acquisitions can be classified in terms of the direction of the growth. A horizontal merger/takeover is the combining of two firms in the same stage of production, for example Well come Pharmaceuticals merged with Glaxo Pharmaceuticals. This sort of integration takes place to combat competition from the market and secure market domination; to reduce risks and increase financial strength; and to compete in
Diversification is entering the new markets with new products and different from those in which the firm is currently engaged in. It is helpful to divide diversification into ‘related’ diversification and ‘unrelated’ diversification. Related diversification is when a business adds or expands its existing product markets. The company starts manufacturing a new product or through new market related to its business activity. For example, a phone company that adds or expands its wireless products or services by purchasing another wireless company is engaging in related diversification. Under related diversification, companies want to make easier the consumption of its products by producing complementing goods or offering complementing services. In a related diversification the resulting combined business should able to improve return on investment (ROI) because of increased revenues, decrease costs and reduced investment.
Going abroad, firms select between opening a foreign branch, which allows them to be proximate to their consumers, and exporting, which is associated with variable trade costs but avoids duplication costs. This so-called proximity-concentration tradeoff is extensively discussed in the trade literature. In line with the empirical evidence for the manufacturing sector, a seminal paper by \cite{helpman2004} finds that only the most productive firms conduct foreign direct investment (FDI), while less productive firms serve foreign markets via exports.\footnote{For the manufacturing sector in Germany, \cite{happyfew} find that relative to exporters, multinationals are substantially larger, more productive, pay higher wages and generate higher value
Diversification is a method of investing that been shown to increase portfolio return while reducing portfolio risk as measured by standard deviation. This method specifically increases the efficient frontier for investors. The challenge to an investing firm is an appetite by its customers for an ever increasing efficient frontier. One area to explore to obtain this increase is through further diversifying through international diversification.
* When an organization takes up the same type of products at the same level of production or marketing process, it is said to follow a strategy of horizontal integration
• Exporting requires significantly lower level of investment than other modes of international expansion, such as FDI. As you might expect, the lower risk of export typically results in a lower rate of return on sales than possible though other modes of international business. In other words, the usual return on export sales may not be tremendous, but neither is the risk.