Question

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The two strategies of Foreign Direct Investment (FDI), are the 'Greenfield Investment'., and the 'Brownfield investment method'

What are the strategies and the benefits of each strategy? Explain your responses.

Answer 1

When multinational companies and major investors while expand their investment in global market, they usually search for the best investment options. The purpose of choosing the best option is to minimize risk and maximize short-term and long-term benefits. The Greenfield and Brownfield investments are the two different strategies of investment open to the FDI investors.

Under Greenfield investment the investor or the company chooses to begin their operations by constructing new production facilities. They establish offices, living quarters and distribution hubs in foreign host countries.

Benefits.

The host country usually offers various benefits and incentive under Greenfield investment. These benefits include tax concessions, preferential rates for import and export and subsidies.

The company or investor has complete control over designing its facilities and maintaining rules and policies.

It helps the company to achieve economies of scale and economies of scope.

It creates additional job opportunities in the host country.

But under Brownfield investment, the company or investor purchase an existing production facility in a foreign country either by leasing or by direct purchase. The investor does not want to incur addition cost of investment. Merger and acquisition are the common form of Brownfield investment.

Benefits.

In Brownfield investment, the parent company can eliminate building cost. The company can simply focus on remodeling and upgrading the existing system. The company can skip the initial paper work and other requirements.

The acquisition of an already existing facility reduces the construction and minimizes it into maintenance. It saves parent company’s money and time.

Access of foreign market is easy under this strategy of investment.

No cost on staffing and training and government licensing.