Advantages and disadvantages of greenfield investment strategy

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Advantages and disadvantages of greenfield investment strategy

Concentration of resources towards production Little or no financial commitment as the clients' exports usually covers most expenses associated with international sales. Export management is outsourced, alleviating pressure from management team No direct handle of export processes.

Indirect exporting is preferred by companies who would want to avoid financial risk as a threat to their other goals. In this foreign market entry mode, a licensor in the home country makes limited rights or resources available to the licensee in the host country.

The rights or resources may include patents, trademarks, managerial skills, technology, and others that can make it possible for the licensee to manufacture and sell in the host country a similar product to the one the licensor has already been producing and selling in the home country without requiring the licensor to open a new operation overseas.

The licensor earnings usually take forms of one time payments, technical fees and royalty payments usually calculated as a percentage of sales. As in this mode of entry the transference of knowledge between the parental company and the licensee is strongly present, the decision of making an international license agreement depend on the respect the host government show for intellectual property and on the ability of the licensor to choose the right partners and avoid them to compete in each other market.

Licensing is a relatively flexible work agreement that can be customized to fit the needs and interests of both, licensor and licensee. Following are the main advantages and reasons to use an international licensing for expanding internationally: On the other hand, international licensing is a foreign market entry mode that presents some disadvantages and reasons why companies should not use it as: Lower income than in other entry modes Loss of control of the licensee manufacture and marketing operations and practices leading to loss of quality Risk of having the trademark and reputation ruined by an incompetent partner The foreign partner can also become a competitor by selling its production in places where the parental company is already in.

Franchising[ edit ] The franchising system can be defined as: In addition to that, while a licensing agreement involves things such as intellectual property, trade secrets and others while in franchising it is limited to trademarks and operating know-how of the business.

Advantages and disadvantages of greenfield investment strategy

Low political risk Allows simultaneous expansion into different regions of the world Well selected partners bring financial investment as well as managerial capabilities to the operation.

Disadvantages of franchising to the franchisor: A turnkey project is a way for a foreign company to export its process and technology to other countries by building a plant in that country.

Industrial companies that specialize in complex production technologies normally use turnkey projects as an entry strategy. Potential disadvantages of a turnkey project for a company include risk of revealing companies secrets to rivals, and takeover of their plant by the host country.

Entering a market with a turnkey project CAN prove that a company has no long-term interest in the country which can become a disadvantage if the country proves to be the main market for the output of the exported process.

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Greenfield investment and Acquisitions. Greenfield investment and acquisition include both advantages and disadvantages. To decide which entry modes to use is depending on situations.

Greenfield investment is the establishment of a new wholly owned subsidiary. It is often complex and potentially costly, but it is able to provide full control to the firm and has the most potential to provide above average return.

This entry strategy takes much time due to the need of establishing new operations, distribution networks, and the necessity to learn and implement appropriate marketing strategies to compete with rivals in a new market.

Acquisition has been increasing because it is a way to achieve greater market power. The market share usually is affected by market power. Therefore, many multinational corporations apply acquisitions to achieve their greater market power, which require buying a competitor, a supplier, a distributor, or a business in highly related industry to allow exercise of a core competency and capture competitive advantage in the market.

On the other hand, there are many disadvantages and problems in achieving acquisition success. Integrating two organizations can be quite difficult due to different organization cultures, control system, and relationships.

By applying acquisitions, some companies significantly increased their levels of debt which can have negative effects on the firms because high debt may cause bankruptcy.

Difference between international strategy and global strategy[ edit ] However, some industries benefit more from globalization than do others, and some nations have a comparative advantage over other nations in certain industries.

To create a successful global strategy, managers first must understand the nature of global industries and the dynamics of global competition, international strategy i. Basically there are three key differences between them. Firstly, it relates to the degree of involvement and coordination from the Centre.

Moreover, the difference relates to the degree of product standardization and responsiveness to local business environment. The last is that difference has to do with strategy integration and competitive moves.

Joint venture[ edit ] There are five common objectives in a joint venture: Other benefits include political connections and distribution channel access that may depend on relationships. The partners' strategic goals converge while their competitive goals diverge The partners' size, market power, and resources are small compared to the Industry leaders Partners are able to learn from one another while limiting access to their own proprietary skills The key issues to consider in a joint venture are ownership, control, length of agreement, pricing, technology transfer, local firm capabilities and resources, and government intentions.

The joint venture attempts to develop shared resources, but each firm wants to develop and protect its own proprietary resources. The joint venture is controlled through negotiations and coordination processes, while each firm would like to have hierarchical control.

Strategic alliance[ edit ] strategic alliance is a type of cooperative agreements between different firms, such as shared research, formal joint ventures, or minority equity participation.A greenfield investment is an investment in which the parent firm constructs its own subsidiary company in a foreign country.

Coca-Cola and Starbucks are examples of multinational companies that. The Pension Bridge Inc. is an innovative company offering educational conferences of the highest quality to the Institutional Investment Community.

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