Advantages of greenfield investments include increased control, the ability to form marketing partnerships and the avoidance of intermediary costs. Greenfield investments are a direct entry into the economy of a foreign country, one of many options available to businesses seeking opportunities to expand into emerging markets. A greenfield investment is an investment in which the parent firm constructs its own subsidiary company in a foreign country. Coca-Cola and Starbucks are examples of multinational companies that have made numerous greenfield investments worldwide. Greenfield investments are an alternative to foreign portfolio investments where an individual or company merely invests in the stocks or bonds of an existing company in a foreign country.
Advantages of Greenfield Investments
The primary advantages of greenfield investments stem from having 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.
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. Having complete ownership of its subsidiary firm allows a company to extend items to customers or potential customers, such as discounts, rebates or warranties, as the marketplace situation dictates.
The company’s on-site presence can also make it more adept at crafting advertising and marketing efforts with maximum effectiveness within a specific market environment. It also affords the opportunity to form partnership efforts with native businesses to gain further market penetration. The cost of using intermediaries to conduct business is virtually avoided altogether. Depending on the country's economic policies, companies can also profit from receiving business tax incentives.