A green field investment is a type of foreign direct investment (FDI) where a parent company builds its operations in a foreign country from the ground up. In addition to the construction of new production facilities, these projects can also include the building of new distribution hubs, offices and living quarters (Green Field Investment, n.d.).
A green field investment originally referred to locating new company buildings on a pasture that was literally a green field that has never been used for production, but the term is often used generally in modern business communication (Greenfield Investment, n.d.).
A green field investment originally referred to locating new company buildings on a pasture that was literally a green field that has never been used for production, but the term is often used generally in modern business communication (Greenfield Investment, n.d.).
Green field investment provides the highest degree of control for the sponsoring company when compared to other methods of FDI, such as foreign acquisitions or buying controlling stakes in a foreign company (Green Field Investment, n.d.).
This type of investment is completely different from indirect investments, such as the purchase of foreign securities, in which case companies may have little or no control in operations, quality control, sales and training. In green-field projects, a company’s plant construction, for example, is done to its own specifications, employees are trained to company standards and fabrication processes can be tightly controlled (Green Field Investment, n.d.).
Benefits and Risks of Green Field Investment
Developing countries tend to attract prospective companies with offers of preferential rates for import/export, tax breaks, subsidies and other incentives to set up green field investments. While these concessions may result in lower corporate tax revenues in the short term, the economic benefits and the enhancement of local human capital can deliver positive returns over the long term (Green Field Investment, n.d.).
Green field investments providing a high level of direct control over the investment enterprise. A company that gains entry into a foreign market through a greenfield investment has total control over the products or services manufactured or sold. This includes control over product quality and rates of production and control of the rate at which the company expands its presence in the country. The company has the option to begin its operations on a small scale and then gradually increase its presence or prepare in advance for a large scale rollout of the company’s products (J.B. Maverick, n.d.).
Additionally, greenfield investments enable easier and more effective adaptation to the foreign market. Both products and pricing can be adapted to the needs of the local market (J.B. Maverick, n.d.).
Green field investments providing a high level of direct control over the investment enterprise. A company that gains entry into a foreign market through a greenfield investment has total control over the products or services manufactured or sold. This includes control over product quality and rates of production and control of the rate at which the company expands its presence in the country. The company has the option to begin its operations on a small scale and then gradually increase its presence or prepare in advance for a large scale rollout of the company’s products (J.B. Maverick, n.d.).
Additionally, greenfield investments enable easier and more effective adaptation to the foreign market. Both products and pricing can be adapted to the needs of the local market (J.B. Maverick, n.d.).
As opposed to a brown field investment, where leasing existing facilities and land results in relatively lower expenses, green field investments forwarded by multinational corporations entail higher risks and higher costs associated with building new factories or manufacturing plants (Green Field Investment, n.d.). Green field investment requires more time to establish, build and run the production operations. It is more expensive at the beginning (Bryan Jewell, n.d.).
As a long-term commitment, one of the greatest risks in green field investment is the relationship with the host country (Green Field Investment, n.d.). Any sudden changes in political environment or relationship with the government in the foreign country could pose an immediate threat to the company (Bryan Jewell, n.d.). Any circumstances or events that result in the company pulling out of a project at any time can be financially devastating (Green Field Investment, n.d.).
Smaller risks include construction overruns, problems with permitting, difficulties in accessing resources and issues with local labor (Green Field Investment, n.d.). Difficulties with gaining the necessary permits and accessing resources could slow down the startup and growth process (Bryan Jewell, n.d.).
Companies contemplating green field projects typically invest large sums of time and money in advance research to determine feasibility and cost-effectiveness (Green Field Investment, n.d.).
Brown Field Investment
Brown field investment is when a company purchases or leases existing production facilities to launch a new production activity. This is one strategy used in foreign-direct investment. The alternative to this is a green field investment, in which a new plant is constructed (Brown Field Investment, n.d.).
Brown field investing covers both the purchase and the lease of existing facilities. At times, this approach may be preferable, as the structure already stands. Not only can it result in cost savings for the investing business, but it can also avoid certain steps that are required to build new facilities on empty lots, such as building permits and connecting utilities (Brown Field Investment, n.d.).
The term brown field refers to the fact that the land itself may be contaminated by the prior activities that have taken place on the site, a side effect of which may be the lack of vegetation on the property. When a property owner has no intention of allowing further use of vacant brown field property, it is referred to as a mothballed brownfield. Sites that are significantly contaminated, such as by hazardous waste, are not considered to be brown field properties (Brown Field Investment, n.d.).
Benefits and Risks of Brown Field Investment
The clear advantage of a brown-field investment strategy is that the building is already constructed. The start-up costs may be greatly reduced. The time devoted to construction can be avoided as well (Troy Segal, 2017).
If the facility already possesses the required equipment, this reduces the expenses down to only maintenance, if there is the need to add or upgrade new equipment, this approach still proves to be cost friendly. This is one of the features that saves the most time and money (Bryan Jewell, n.d.).
If the existing national or municipal government requires licenses or approvals, the brown-field facility may already be "up to code." In cases where the facility previously supported a similar production process, brown-field investments can be a real coup for the right company (Troy Segal, 2017).
Brown-field investments run the risk of leading to buyer's remorse. Even if the premises had been previously used for a similar operation, it is rare that a company looking finds a facility with the type of capital equipment and technology to suit its purposes completely. If the property is leased, there may be limitations on what kinds of improvements can be made (Troy Segal, 2017).
The difference in corporate culture may pose an obstacle when joining the company with the acquired personnel, as they are forced to embrace new policies of behavior and business (Bryan Jewell, n.d.).
Smaller risks include construction overruns, problems with permitting, difficulties in accessing resources and issues with local labor (Green Field Investment, n.d.). Difficulties with gaining the necessary permits and accessing resources could slow down the startup and growth process (Bryan Jewell, n.d.).
Companies contemplating green field projects typically invest large sums of time and money in advance research to determine feasibility and cost-effectiveness (Green Field Investment, n.d.).
Brown Field Investment
Brown field investment is when a company purchases or leases existing production facilities to launch a new production activity. This is one strategy used in foreign-direct investment. The alternative to this is a green field investment, in which a new plant is constructed (Brown Field Investment, n.d.).
Brown field investing covers both the purchase and the lease of existing facilities. At times, this approach may be preferable, as the structure already stands. Not only can it result in cost savings for the investing business, but it can also avoid certain steps that are required to build new facilities on empty lots, such as building permits and connecting utilities (Brown Field Investment, n.d.).
The term brown field refers to the fact that the land itself may be contaminated by the prior activities that have taken place on the site, a side effect of which may be the lack of vegetation on the property. When a property owner has no intention of allowing further use of vacant brown field property, it is referred to as a mothballed brownfield. Sites that are significantly contaminated, such as by hazardous waste, are not considered to be brown field properties (Brown Field Investment, n.d.).
Benefits and Risks of Brown Field Investment
The clear advantage of a brown-field investment strategy is that the building is already constructed. The start-up costs may be greatly reduced. The time devoted to construction can be avoided as well (Troy Segal, 2017).
If the facility already possesses the required equipment, this reduces the expenses down to only maintenance, if there is the need to add or upgrade new equipment, this approach still proves to be cost friendly. This is one of the features that saves the most time and money (Bryan Jewell, n.d.).
If the existing national or municipal government requires licenses or approvals, the brown-field facility may already be "up to code." In cases where the facility previously supported a similar production process, brown-field investments can be a real coup for the right company (Troy Segal, 2017).
Brown-field investments run the risk of leading to buyer's remorse. Even if the premises had been previously used for a similar operation, it is rare that a company looking finds a facility with the type of capital equipment and technology to suit its purposes completely. If the property is leased, there may be limitations on what kinds of improvements can be made (Troy Segal, 2017).
The difference in corporate culture may pose an obstacle when joining the company with the acquired personnel, as they are forced to embrace new policies of behavior and business (Bryan Jewell, n.d.).
Edited by: 浪子
Bibliography
Green Field Investment. (n.d.). Retrieved from https://www.investopedia.com/terms/g/greenfield.asp
Troy Segal. (2017). Green-field and Brown-field Investments Unveiled. Retrieved from
https://www.investopedia.com/ask/answers/043015/what-difference-between-green-field-and-brown-field-investment.asp
Brown Field Investment. (n.d.). Retrieved from https://www.investopedia.com/terms/b/brownfield.asp
Greenfield Investment. (n.d.). Retrieved from
http://www.businessdictionary.com/definition/greenfield-investment.html
J.B. Maverick. (n.d.). What Are the Benefits for a Company Investing in a Greenfield Investment? Retrieved from https://www.investopedia.com/ask/answers/071315/what-are-benefits-company-investing-greenfield-investment.asp
Bryan Jewell. (n.d.). Greenfield Investment VS Brownfield Investment Strategies. Retrieved from
https://investedreviews.com/greenfield-investment-vs-brownfield-investment-strategies/
Troy Segal. (2017). Green-field and Brown-field Investments Unveiled. Retrieved from
https://www.investopedia.com/ask/answers/043015/what-difference-between-green-field-and-brown-field-investment.asp
Brown Field Investment. (n.d.). Retrieved from https://www.investopedia.com/terms/b/brownfield.asp
Greenfield Investment. (n.d.). Retrieved from
http://www.businessdictionary.com/definition/greenfield-investment.html
J.B. Maverick. (n.d.). What Are the Benefits for a Company Investing in a Greenfield Investment? Retrieved from https://www.investopedia.com/ask/answers/071315/what-are-benefits-company-investing-greenfield-investment.asp
Bryan Jewell. (n.d.). Greenfield Investment VS Brownfield Investment Strategies. Retrieved from
https://investedreviews.com/greenfield-investment-vs-brownfield-investment-strategies/
Green Field Investment vs Brown Field Investment
Reviewed by 浪子
on
October 29, 2018
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Reviewed by 浪子
on
October 29, 2018
Rating:
