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Green-Field Investment

Green-Field Investment


By JAMES CHEN Updated July 25, 2020

What Is a Green-Field Investment?
A green-field (also “greenfield”) investment is a type of foreign direct investment (FDI) in which a parent company creates a subsidiary in a different country, building its operations 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.

The Basics of a Green-Field Investment
The term “green-field investment” gets its name from the fact that the company—usually a multinational corporation (MNC)—is launching a venture from the ground up—plowing and prepping a green field. These projects are foreign direct investments—known simply as direct investments—that provide the highest degree of control for the sponsoring company.

Another method of FDI includes foreign acquisitions or buying a controlling stake in a foreign company. However, when a business takes the acquisition route, they may face regulations or difficulties that can hinder the process.

In a green-field project, a company’s plant construction, for example, is done to its specifications, employees are trained to company standards, and fabrication processes can be tightly controlled.

This type of involvement is the opposite of indirect investment, such as the purchase of foreign securities. Companies may have little or no control in operations, quality control, sales, and training if they use indirect investment.

Splitting the distance between a green-field project and indirect investment is the brown-field (also “brownfield”) investment. With brown-field investing, a corporation leases existing facilities and land and adapts them to suit its needs. Renovation and customization usually result in relatively lower expenses and quicker turn-around than building from scratch.

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