Against this, you need to consider: Could there be hidden surprises? An acquisition is often expensive and time-consuming. It necessitates a blending of corporate cultures. There are potential tax and legal problems. Greenfield investment A greenfield investment starts with bare ground and builds up from there. The advantages of a greenfield investment are: You will achieve economies of scale and scope in production, marketing, finance, research and development, transportation and purchasing.
You will have greater control of all aspects of the business. You will be able to implement the best long-term strategy. Commitment to the market will be solid. Vendor financing is often available. You can work with the relevant authorities from the beginning. You will have control over your brand. You will have control over your staff. There will be press opportunities.
Other reasons a foreign acquisition could be better than a green field investment include considerations such as training, supply chain , lower cost of labor, lower cost of service or manufacturing, existing employed labor, existing executive management team, brand name, customer base, financing relationships, and financing access.
Finally, the most important consideration is usually cost. An acquisition team will fully consider the costs of an international acquisition versus the costs of a green field investment in terms of net present value, internal rate of return, discounted cash flow, and impact to earnings per share. Based on these areas of analysis a team would want to identify the most cost-effective investment decision.
With all types of investments, there is a multitude of costs involved. Acquiring a company in another country can often be relatively less expensive because licenses, registrations, building infrastructures, and other business assets are already in place.
Buying an existing business with existing assets is usually less costly and also includes less time needed for market introduction. Even if an acquisition is the most cost-effective choice however, it is important to keep in mind that some caveats might exist.
One main potential issue is that when buying a company, there may be regulatory barriers that inhibit the acquisition because of the scale of the two combined businesses after the acquisition or for other reasons. International regulatory approvals can be lengthy. They can also ultimately result in a blocking of the entire acquisition altogether or certain divesting requirements that can be problematic for a deal.
A green field investment is a corporate investment that involves building a new entity in a foreign country. Green field investments are also known as foreign direct investments FDI. In a green field investment, the new company must typically adhere to all local laws regardless of its parent company association. One of the top reasons for making a green field investment is the lack of suitable targets in a foreign country for acquisition. Alternatively, a company may find acquisition targets but see serious difficulties involved in integrating a parent company with a target.
In some cases, a green field investment may be the best option because businesses can gain local government-related benefits by starting up from scratch in a new country, as some countries provide subsidies , tax breaks, or other benefits in order to promote the country as a good location for foreign direct investment. Green field investment analysis will typically focus more heavily on the net present value and internal rate of return calculations since the goal is to make an investment in building a newly created company that will generate returns in the future.
This differs from the need to analyze an already existing business using standard analysis like discounted cash flow and enterprise value. A green field investment analysis can have slightly higher risks than an acquisition because the costs may be unknown.
With an acquisition, analysts usually have actual financial statements and costs to work with. In a green field investment, it can be important to use analysis of similar companies or business models in the target market to obtain a framework for costs. In general, green field investment analysis involves structuring a detailed business plan along with building a financial model that includes all of the expected costs.
In a green field investment, a parent company would need to obtain costs for land, building licenses, building construction, maintenance of new facilities, labor, financing approvals, and more. In acquisitions and other large capital project analysis, there are a few common types of financial modeling analysis that are standard for the financial industry. Net present value NPV : Net present value analysis identifies the present value of future cash flows for investment.
NPV is usually used in capital project analysis where investment projections are based on hypothetical estimates. It uses an arbitrary discount rate depending on risk with the U. DCF is usually used when dealing with valuations of existing companies. This rate provides analysts with the rate of return on the investment. Department of the Treasury. Small Business Economics, 48 3 , — Davies, R. De Backer, K. Does foreign direct investment crowd out domestic entrepreneurship?
Review of Industrial Organization , 22 1 , 67— De Mello, L. Foreign direct investment-led growth: Evidence from time series and panel data. Oxford Economic Papers , 51 1 , — Fu, X. Foreign direct investment and managerial knowledge spillovers through the diffusion of management practices.
Gartner, W. Entrepreneurship Theory and Practice , 13 4 , 47— Gavron, R. The entrepreneurial society. London: Institute for Public Policy Research. Gemmell, N. Economic development and structural change: The role of the service sector. Journal of Development Studies , 19 1 , 37— Gopalan, S. Ouyang, A. Economia Politica, 35 1 , 41— Gorg, H. Much ado about nothing? Do domestic firms really benefit from foreign direct investment?
The World Bank Research Observer , 19 2 , — Goel, R. Foreign direct investment and entrepreneurship: Gender differences across international economic freedom and taxation. Small Business Economics, 50 4 , — Gromb, D. Entrepreneurship in equilibrium. Grossman, G. Trade, Knowledge Spillovers, and Growth. European Economic Review, 35 , — The Journal of Technology Transfer, 34 4 , — Harbison, F. Entrepreneurial organization as a factor in economic development.
The Quarterly Journal of Economics , 70 3 , — Harrison, A. Does direct foreign investment affect domestic firm credit constraints? Journal of International Economics , 61 1 , 73— Harms, P. Review of International Economics , 26 1 , 37— Hennart, J.
Greenfield vs. Management Science , 39 9 , — In Search of the Meaning of Entrepreneurship. Small Business Economics, 1 , 39— Hofstede, G. Cultures and organizations: Software of the mind. New York: McGraw Hill. Hausman, J. Javorcik, B. Does foreign direct investment increase the productivity of domestic firms?
In search of spillovers through backward linkages. The American Economic Review , 94 3 , — Johnson, A. The effects of FDI inflows on host country economic growth. Jude, C. Does FDI crowd out domestic investment in transition countries? Economics of Transition and Institutional Change , 27 1 , — Karlsson, S. FDI and job creation in China , p. IFN Working Paper. Kaufmann, D. Governance indicators: Where are we, where should we be going? In Policy Research Working Paper Washington, DC: World Bank.
Chapter Google Scholar. Kim, P. Injecting demand through spillovers: Foreign direct investment, domestic socio-political conditions, and host-country entrepreneurial activity. Journal of Business Venturing , 29 , — Kim, Y.
Journal of Policy Modeling, 31 1 ,87— Journal of Economic Studies, 30 , Klapper, L. The impact of the financial crisis on new firm registration. Economics Letters , 1 , 1—4. Knoben, J.
Employment from new firm formation in the Netherlands: Agglomeration economies and the knowledge spillover theory of entrepreneurship.
Lankes, R. The atlas of new librarianship. Book Google Scholar. Markusen, J. Moriano, J. A crosscultural approach to understanding entrepreneurial intention. Journal of Career Development , 39 2 , — Moran, T. Foreign direct investment and development. Washington D. Muller, T.
Analyzing modes of foreign entry: Greenfield investment versus acquisition. Review of International Economics , 15 1 , 93— Munemo, J. Foreign direct investment, business start-up regulations and entrepreneurship in Africa. Economics Bulletin , 35 1 , 1— Neumann, T. The impact of entrepreneurship on economic, social and environmental welfare and its determinants: A systematic review. Management Review Quarterly.
Privatization policy in an international oligopoly. Economica , 72 , — Pathak, S. Inbound foreign direct investment and domestic entrepreneurial activity. Women in business: Entrepreneurship, ethics and efficiency.
International Entrepreneurship and Management Journal, 8 3 , — Poschke, M. Applied Economics Letters , 20 7 , — Poulsen, L. Foreign direct investment in times of crisis , pp. Raff, H.
Rissman, E. Self-employment as an alternative to unemployment , pp. Rodriguez-Clare, A. Multinationals, linkages, and economic development. American Economic Review , 86 4 , — Romer, P.
Increasing return and long-run growth. Journal of Political Economy , 94 5 , — Endogenous technological change. Journal of Political Economy , 98 , 71— Rudra, N. Globalization and the decline of the welfare state in less-developed countries. International Organization , 56 2 , — Salgado-Banda, H. Entrepreneurship and economic growth: An empirical analysis. Journal of Developmental Entrepreneurship , 12 1 , 3— Solow, R.
A Contribution to the Theory of Economic Growth. The Quarterly Journal of Economics, 70 1 , 65— Schumpeter, J. The theory of economic development. Capitalism, socialism and democracy. New York: Harper. Stiebale, J. The impact of FDI through mergers and acquisitions on innovation in target firms. International Journal of Industrial Organization, 29 2 , — Thai, M.
Macro-level determinants of formal entrepreneurship versus informal entrepreneurship. Journal of Business Venturing, 29 4 , Foreign Direct Investment and the Challenge of Development. Wu, J. Foreign direct investment vs. Management International Review , 52 5 , —
0コメント