By Saksham Arora See, each and every one of us knows that if some brand or business is going global, it is a good thing because they’ll be reaching more customers now, and in return, they’ll be making more profits. But when it comes to doing this, there is this thing called Greenfield investment, and so many businesses out there actually go down this route. For those who know little to nothing about it yet, well, it is when a company from one country goes to a different country and builds everything from scratch. Yes, they have to start from scratch, like building up things from the ground up on an empty piece of land, which is called “Green Field,” and that’s how they run their operations in other countries. Just like they do it at home. Today, though, we’re here specifically to share with you the Greenfield Investment Advantages and Disadvantages, so you can understand it all in a much better way.
Advantages of Greenfield Investment
1. You Get to Run the Whole Show
Well, the first (and, of course, best bit) about a greenfield investment is that you really control everything. Since you start from scratch, you decide everything, that is, how the facility looks and how workers are trained, and how products are made and marketed. It is like building your dream home from the ground up and making sure every nail is exactly how you want it, at least that’s what it seems like with greenfield investments.
2. Make It Perfect for the Locals
Suppose you are starting from scratch, you can build something new to fit the local people like a glove. Maybe the sort of folks in that country love certain products or have special traditions; one can tweak one’s goods to cater to exactly what they are looking for. For instance, if they like particular flavors or styles to be different, one can build them right in. That is almost impossible to achieve if one is stuck with an old building or somebody else’s company.
3. Dodge Those Extra Taxes
Once items are being sold in another country, there are sometimes taxes placed on them called tariffs that raise the cost to local buyers. However, if the manufacturer builds a factory right there in that country, a large number of those taxes can be bypassed. Just saying!
4. Keep Your Brand and Team on Track
When opening new spaces, people are hired and trained internally by the company. So right from the get-go, one can instill company values such as how to treat customers or other rules to abide by. In this way, a great deal of equity remains in the brand, and the integrity of the brand is maintained wherever it trades.
5. Save Some Cash Over Time
The decision to build new can be considered one of the ways in which money can be saved throughout time because manufacturing lots of products at one place usually costs less per item, and is known as “economies of scale”. However, when the plant commences producing different types of goods, they can share various resources such as machines or workers. This, in turn, increases savings through the concept of “economies of scope”.
6. Give Jobs to Local People
Hiring local people to set up a new place means more jobs for them, which is fabulous for the area. Then, the local vendors that supply you with materials or services gain a bit of profit. So, the good vibes multiply, everybody wins.
7. Use the Coolest New Tech
Since this is from the ground up, you are free to put in the best and newest machines and technology. This means quicker operations and better quality products that reach the hearts of people. Nothing short of that!
Disadvantages of Greenfield Investment
1. It Costs a Ton to Start
Oh, let’s start with the biggest of them all, you see, starting fresh in a new country is very expensive. Land purchase, construction of buildings, installation of machinery, and hiring of people, these just are the upfront costs, which are somehow considered bigger than buying an existing business. It is really a dump of money to spend before something even starts.
2. It Takes a Long Time
It is not an overnight venture to construct new from scratch. It can take anywhere from months to years in preparation-permits from the government, construction, and the site installation of equipment. Moolah-making opportunities stay trapped-kinda patience is required.
3. It’s Kind of Risky
Fears are there when it comes to greenfield investments. You will be going into a new country, perhaps knowing nothing about the market, economy, or local rules. Suppose something goes wrong, such as new laws against your project, a bad economy, or maybe some political drama. Then you stand to lose a lot of money, what an “if” to carry with you.
4. Rules Can Be a Headache
Each nation operates its own system of laws concerning construction, safety, labor, and the environment. A greenfield investment demands that you comply with all of these, and it can be very difficult to just do so. It’s a whole lot of paperwork and a lot of waiting, and sometimes the government develops a new stray law on a whim and drops it on you.
5. Setting Up Suppliers Is Hard
Well, you build a new factory, and then there is that necessity to find people to sell you parts and materials. Next, you have to work out the logistics for shipping the product to the store or the end customers. It surely needs a lot of planning, and if you go wrong somewhere, it could result in bottlenecks or extra expenses. It is not as easy as it sounds.
6. Tough to Walk Away
If things don’t click, you can’t just run away just like that. A greenfield investment is a big, long-term commitment. Leaving could mean wasting tons of money on buildings, land, and equipment. Once you get in, there’s no looking back.
Conclusion
That’s all there is for now. See, in a way, greenfield investment is a good thing, and many businesses or companies do this the traditional way, but still, there are challenges associated with it. If these businesses/companies can somehow bypass those or deal with them, then it is just a smooth going from there on.