What may be the advantages of foreign outsourcing compared t

What may be the advantages of foreign outsourcing compared to vertical FDI?

Solution

FDI is self-production in a foreign land while outsourcing is production through a contract between the MNC and the domestic partner.Vertical FDI occurs if a company invests in a business that plays the role of a supplier or a distributor.

Foreign outsourcing elimInates the fixed incurred costs for opening an affiliate.It reduce transaction cost.Outsourcing entails low technology transmission cost but a higher distortion in input production by the arm\'s length supplier while vertical FDI involves a higher technology transmission cost but a lower distortion in input production by the affiliated supplier. Outsourcing is the preferred mode at higher ends of technological complexity.In case of licensing,assets management employment management, outsourcing is better than FDI.