What is Green Field Investment?
Green Field Investment (GI) is a type of Foreign Direct Investment where a company launches its operations in a foreign country. The company creates new green facilities such as sales offices or manufacturing facilities in an attempt to have more control over its foreign subsidiaries, avoid intermediary costs, and expand into existing markets.
Are Green Field Investments Risky?
Green Field Investments are an extremely high-risk and cost-intensive investment and can create several barriers to entry. They are quite time-consuming as investors have to go through a lengthy process of contacting companies to help them build the facility. The building time itself is really long. This may lead to the risk of a reduction in the demand for the product the investor is willing to sell until the construction is complete. Moreover, the investor must take various permits to start the building process formally. GI is also more vulnerable to political risks.
The lengthy and cost-intensive process of GI scares and intimidates many people. However, being one of the leading advisory companies in East Africa, Shikana Group can play a major role in helping you overcome these risks. Their insightful legal advice can minimize the downfalls associated with Green Field Investment.
The Bright Side of Green Field Investments
Despite their high-risk nature, there are numerous advantages to green field investments. The benefits of GI overpower its risks. The advantages include:
1. Allows for a high level of control
GI allows investors greater control than they would have had for investing in local businesses. The investors can decide their market entry strategy, product pricing, and growth rate. They have the opportunity to start small and grow gradually or directly begin operations on a large scale. They also have greater control over their brand image and staffing.
Since the investors handle operations themselves, they also have a greater focus on product quality. Moreover, the ownership allows for greater chances of discounts, rebates, or warranties for the consumers.
2. Opportunity to tailor marketing and advertising
Green Field Investments allow for effective adaptation to the foreign market. Investors can adjust products and pricing according to consumer behaviors and demands. Furthermore, on-site presence enables investors to tailor marketing and advertising strategies according to the local market conditions and environment.
3. Opportunity to avail of tax discounts
Countries often offer incentives such as tax discounts or lower restrictions to attract foreign direct investment. This allows investors to bypass some of the trade restrictions and spend less on overall taxes.
4. Negligible cost of intermediaries
Green Field Investment allows investors to avoid the cost of using intermediaries such as other investors or lenders.
5. Exchange of ideas and opportunities
Green Field Investments allow the parent companies to overlook the operations of their foreign subsidiaries. This promotes the exchange of ideas and opportunities and helps the subsidiaries to generate more profit and revenues.
6. Product-Specific Construction
Investors who construct facilities abroad from scratch have the opportunity to carry out product-specific construction. This allows investors to consider fire and safety norms as all old facilities do not have product-specific safety procedures. This also helps reduce the overall maintenance cost of the new facility.
7. Economies of Scale and Economies of Scope
GI encourages economies of scale and economies of scope concerning research, marketing, and development.
Need Guidance?
Do you want to make a Green Field Investment, but the procedure daunts you? Rest assured, as Shikana Group can solve your problem. We specialize in legal advisory and can help you make strategic business decisions.
Our legal team possesses vast knowledge about all the East African markets and will walk you through the entire procedure. Contact us to benefit from one of the most trusted legal advisory services and make the right decisions for your business.