Loading the player...

What is a 'Green Field Investment'

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.

BREAKING DOWN 'Green Field Investment'

The term "green field investment" refers to a project where a company builds operations in a foreign market starting from scratch, or a so-called green field. These projects are foreign direct investments that provide 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. 

This type of involvement 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.

Risks and Benefits of Green Field Investments

Developing countries tend to attract prospective companies with offers of 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.

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.

As a long-term commitment, one of the greatest risks in green field investment is the relationship with the host country. Any circumstances or events that result in the company pulling out of a project at any time can be financially devastating. Smaller risks include construction overruns, problems with permitting, difficulties in accessing resources and issues with local labor. Companies contemplating green field projects typically invest large sums of time and money in advance research to determine feasibility and cost-effectiveness.

Examples of Green Field Projects

The Bureau of Economic Analysis (BEA) defines green field investments in the United States as an investment by a foreign entity to either establish a new business in the U.S. or expand an existing foreign-owned business. U.S. green field expenditures, according to data released by the BEA in July 2017, totaled $7.7 billion in 2016, with the most popular industries for such investments being real estate and rental leasing.

In April 2015, Toyota announced its first green field project in Mexico in three years, a $1.5 billion manufacturing plant in Guanajuato. The factory is scheduled to open in 2019 with 2,000 employees and the capacity to produce 200,000 cars per year. Historically, Mexico has been viewed as an attractive country for green field investments due in large part to its low costs of labor and manufacturing, as well as its proximity to markets in the United States.

RELATED TERMS
  1. Green Tech

    Green tech is technology that is considered environmentally friendly ...
  2. Green Bond

    A green bond is a bond specifically to support specific climate-related ...
  3. Green collar

    A green collar worker is one who is employed in an industry in ...
  4. Green Card

    Green card is a colloquial name for the identification card issued ...
  5. Oil Field

    An oil field is a tract of land used for extracting petroleum, ...
  6. Foreign Direct Investment - FDI

    Foreign direct investment (FDI) is an investment made by a company ...
Related Articles
  1. Investing

    Building Green For Your House And Wallet

    The earth-smart money is on these environmentally friendly housing projects.
  2. Investing

    Green Technology: a Solid Investment Choice?

    With global investing in green energy on the rise, there are abundant opportunities for environmentally responsible, financially sound investments.
  3. Insights

    What Does It Mean To Be Green?

    Green investing is the new buzzword for companies and investors. Find out what it means.
  4. Investing

    4 Global Market Trends in 2016 (FXI, IDU)

    Discover key global trends in the equity markets that you should be stalking in 2016, such as green bonds, interest rates and the utility sector.
  5. Investing

    8 Ways to Go Green and Save Money in Retirement

    Using green strategies in retirement can yield benefits for the environment and your financial health if it allows you to stretch your savings further.
  6. Insights

    Five Companies Leading The Green Charge

    Corporations that reduce their environmental footprint anticipate large long-term gains.
  7. Managing Wealth

    How the Green Card Lottery Really Works

    Here's how the popular green card lottery, run by the U.S. State Department, operates, including some tips on improving your odds of winning.
  8. Personal Finance

    Hetty Green: The Witch Of Wall Street

    Hetty Green was the richest woman of her time and possibly the first value investor, yet she's not remembered kindly.
  9. Managing Wealth

    Top 6 High-Paying Environmental Jobs

    Working to save the earth doesn't have to mean being broke.
  10. Financial Advisor

    How Going Green Can Cut Your Taxes

    Investors looking to improve their bottom line via green investing without risk should take advantage of these tax credits.
RELATED FAQS
  1. Green Field vs. Acquisition to Enter New Country?

    A business considering new international operations must decide whether to create a new site via a green field investment, ... Read Answer >>
  2. Foreign Portfolio Investment vs FDI

    Learn the significant differences between foreign direct investment and foreign portfolio investment and how they appeal ... Read Answer >>
  3. What are some examples of a Foreign Institutional Investor (FII)?

    Discover some examples of foreign institutional investors, and learn information about the nature of foreign institutional ... Read Answer >>
Trading Center