An entrepreneur is someone who establishes a startup aiming to make it his full-time income. And while the definition has stayed the same for hundreds of years, the possibilities for entrepreneurship and opportunities sure have increased over time.
A lot of new businesses start operating more frequently now, and apart from new companies, there are also companies that are already established and well perceived in their own countries. Still, they want to expand their business to foreign countries as well in the form of foreign direct investment, also known as FDI. FDI deals with many different types of investments, and one of them is green field investment.
What Is Green Field Investment?
It is a type of direct investment where a company starts operating in a foreign country. They established their subsidiary by building a brand new facility, including manufacturing hubs and administrative offices. All the expenses for this entire process are covered by the parent company.
The investment allows the parent company to have control over every act. They have a keen eye on the buy and sell, and the employees also have to follow the rules set by the parent company. Greenfield investment is capital intensive and requires a certain level of commitment from the parent company, which is also called the sponsor for the newly established subsidiary.
Advantages And Disadvantages Of Green Field Investment
There are plenty of both advantages and disadvantages to greenfield investment, and we’re going to discuss them below;
Advantages
- It increases job opportunities for the people in other countries.
- It gives control over expenses.
- It provides control over manufacturing and sales.
- It allows for avoiding trade restrictions.
Disadvantages
- High investment risk.
- Government regulations regarding foreign investments.
- High market cost.
- Higher fixed cost for establishing a facility.
Why Is It Related To Entrepreneurship?
Greenfield investment is a form of foreign investment where a company does not buy stocks and shares from an existing company but build its business from the start in a foreign country. It might be an established business in their own country, but it is not far from entrepreneurship in a different country. They deal with local competitions and local target markets.
It allows the investor to have complete control over everything, but it doesn’t necessarily result in success every time. There are also companies that started their subsidiaries in foreign countries but failed to perform as entrepreneurs there.
Entrepreneurship is essential for the economy’s growth, and entrepreneurs bring innovation with their new ideas and strategies. Start of new business results in more employment opportunities. Both greenfield investment and entrepreneurship have a high-risk factor in them because starting something new always comes with risk, whether it is in your country or a different one, but their relationship has been ignored all this time. WIth increasing greenfield investments, the world is seeing more and more entrepreneurs introducing their businesses not only in their country but in foreign countries.
Downside
There is always a downside to everything, and it’s nothing different with green field investment. It is the riskiest form of FDI because some countries ban foreign direct investments altogether due to sensitive political situations. If you still manage to get into a country, there are still entry barrier costs and restrictions to using local content.
For manufacturing something in a foreign country, you need to use the product that is domestically manufactured, which might affect the quality that you are hoping to serve. You will also need to purchase a building to build a facility, and it can cost you a lot in a foreign country. The political situation of that country also plays an essential role in determining if you will be able to sustain it or not.To get all the valuable information regarding investments, reach out to Shikana Group, and they will help you make the best decision for your business. They have a team of professional lawyers who provide legal and investment advisory and also take care of your logo, company name, and designs, so there is no issue regarding plagiarism.