Foreign direct investments
3 important questions on Foreign direct investments
When wanting to use FDI as a method for market entry, companies have three options:
- Greenfield strategy
- Acquisition strategy
- Joint venture
Describe the three methods
- Greenfield strategy
- Building new facilities (Starting an operation from scratch)
- Acquisition strategy (or brownfield)
- Buying existing assets in a foreign country
- Joint venture
- Two or more firms agreeing to work together
What are the advantages and disadvantages of the greenfield strategy?
Advantage:
Disadvantage:
- Firm can select the site that best meets its needs
- Construct modern, up-to-date facilities
- No existing debt for managers
- Jobs for a local community
Disadvantage:
- Successful implementation takes time and patience
- Land might be unavailable or expensive
- Recruit local workforce and train them to meet company standards.
- Might be seen as a foreign enterprise.
What are the advantages and disadvantages of the acquisition strategy?
Advantage:
Disadvantages:
- Acquiring a going concern -> Faster control over the firm's factories, employees, technology, brand names, and distribution networks.
- Generate revenue as the purchaser takes over.
Disadvantages:
- The acquiring firm takes over all the liabilities of the acquired firm and becomes responsible for them
- Financial, managerial, etc.
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