Professional Documents
Culture Documents
04
Submitted To:
Submitted By:
MBA-041)
(FA09-
Aman-U-Allah
(FA09-MBA-099)
Mashood Karam Shah
(FA09-
MBA-076)
Fahad Khan
(FA09-MBA-060)
Topic:
Greenfield or Acquisition?
Page 1
Table of Content
Sr. Title
1.
Greenfield investment
Page No
3
2. Acquisition
3.
4.Greenfield or Acquisition
4-5
6. Case Study
Page 2
1.Greenfield investment:
Greenfield is the establishment of new business in a foreign country. A form of foreign direct
investment where a parent company starts a new venture in a foreign country by constructing
new operational facilities from the ground up. In addition to building new facilities, most
parent companies also create new long-term jobs in the foreign country by hiring new
employees. Developing countries often offer prospective companies tax-breaks, subsidies and
other types of incentives to set up green field investments.
Example of Greenfield-- Hyundai Motor Company goes ahead with a major Greenfield
investment in Nosovice in the Moravia-Silesia region of the Czech Republic. The company plans
to open a new manufacturing plant, which should begin operations in October 2008 and employ
3,000 people. It is expected that a further 13,000 people will find work within the supply
industry and in services. Both the Czech government and Hyundai will sign an agreement
outlining the conditions of this investment.
2.Acquisition:
Acquisition involves merger or acquisition in a foreign country with an existing firm. It is firms
strategy of buying capital, technology, assets and firms management of various companies to
grow quickly in a foreign country.
Example of Acquisition The big example is CEMEX, that is the worlds third largest cement
company. CEMEXS rise to global status took less than a decade and has been driven primarily
by acquisition. If CEMEX relies on Greenfield it could not become so large so fast.
3.Pros and Cons of Greenfield Venture
Developing a greenfield site or territory is an opportunity not without a challenge. That challenge
becomes even greater when the greenfield territory or site is part of a new, developing area. It
has some pros and cons.
Pros:
-Can build subsidiary it wants
-Easy to establish operating routines
CIIT| Department of Management & Sciences
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-It will have its own new strategic plans, technical assets.
-Strategy may be made for business, from its parent country, after some commitment with the
host country, by keeping in mind the cultural, social aspect and consumer taste and
preferences.
Cons:
Slow to establish
New firm may fails to meet the demand and requirement of the country, if it fails know
the demand of the people. That causes a great loss. Because the firm has invested huge
amount.
4.Greenfield or Acquisition?
It is very difficult to choose either Greenfield or acquisition. Because, both ventures has some
advantages and disadvantages. As the green field is slower than, while acquisition is quick to
execute. In fact the choice depends upon the circumstances and factors that influence the activity
and make difficult choice for the firms either they go for Greenfield or acquisition. We will
discuss both either the firm choose Greenfield or acquisition.
Greenfield
Firms that have competitive advantage on technical know-how, management skills, and
core competencies and know the culture of that country (where they go for investment)
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can make Greenfield. For example, firms such as McDonalds prefer to Greenfield rather
than acquisition.
When the firm is considering entering the market, where there are no potential or existing
competitors, then the firm can enter the market with green field investment. Although, it
is slow to establish, but it is beneficial for the firm because it grows with low risk and
with its own physical, financial, human resources and with productive employees.
When markets are very much or very little competitive, greenfield investment is the
Acquisition
If the firm is seeking to enter the market where there are already established firms and
where global competitors also interested in establishing a business. The firm will have
to enter in that market with acquisition. In this way firm can compete with its rivals.
Firms could prefer to acquisition in such a case, when foreign firm has strategic assets,
brand loyalty, customer relationship, trade mark or patent, distribution system and well
production system.
Merger and acquisition are quick to execute than green field, so firms prefer this
strategy to acquire the business. For example- Zong acquire the business with its
telecommunication equipments of Paktel, and quickly execute their business in at a very
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Figure1.0
Well established,
Incumbent firms
Acquisition
Competitors
interested in
entry.
Embedded
skills,
Greenfield
No Competition
Page 6
Hyundais investment will impact positively on the economic development of the region of
Moravia-Silesia, as well as on the overall economic growth of the country. It is expected that the
investment will significantly help curb unemployment by up to 2.5% in Moravia-Silesia and
increase state revenue. The effect on the countrys gross domestic product (GDP) will be
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substantial: according to economic analyses, nominal GDP should grow by up to 2.5% once the
manufacturing plant attains its full production volume. As a result, Hyundais investment could
improve the Czech foreign trade balance by about CZK 54 billion (1.9 billion).
According to company representatives, Hyundai chose the Czech Republic for several reasons,
including:
The automobile industry is one of the main drivers of the Czech economy: today, it is one of the
leading European countries with regard to the number of automobiles produced per capita. In
2005, the Czech Republic reached a peak in manufacturing by producing almost 600,000 cars
(excluding industrial vehicles) for the first time in its history; in the coming years, annual
production should exceed 1.2 million cars, according to some estimates.
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