778-Som-Lalit Institute Of Business Management - Gujarat ...

investors resources e.g. management capabilities (the level and nature of the
firm specific advantages).
What investors want to exploit abroad will determine whether the entry will be
Greenfield or acquisition. Location specific advantages don‘t play a significant
role, as it is equally important for either an acquisition or Greenfield entry to
be in the most preferable location.
One advantage of a Greenfield investment is the transferring of firm-specific
advantages to a foreign market, without the risk of losing control over that
competence, as is described in the case of Equity International Joint
Ventures.
This is especially the case when a firm‘s competitive advantage is based on
technological know-how which is one of the core competencies of a firm.
Other inherent advantage of Greenfield investments is that they give a firm
tight control over operations in different countries, which is necessary in a
global strategy.
Establishing a wholly owned Greenfield subsidiary is a very costly way of
entering a foreign market. Companies must bear the full costs of setting up a
new plant, finding suitable employees, costs of learning different government
restriction and different law systems.
One additional disadvantage of Greenfield investment compared with
acquisition is that Greenfield investment adds capacity to the entering market.
This argument against Greenfield investments could be very important in
markets with high competition or fed up markets.
Overall Greenfield investment can be a very risky market entry mode, as the
investors may have to carry the risk of sunk cost alone in a new and uncertain
marketplace.
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