Greenfields and Acquisitions: A comparative Analysis

• Author: Marinescu N.
• Pages: 295-300

Bulletin of the Transilvania University of Braşov

Series V: Economic Sciences • Vol. 9 (58) No. 1 - 2016

Greenfields and acquisitions: a comparative analysis

Nicolae MARINESCU1

Abstract: This paper compares greenfields and acquisitions as foreign direct investment

(FDI) alternatives used by transnational corporations (TNCs). First, the determinants

leading to the choice of companies between the two modes of entry into a foreign market are

laid out. Then, specific features of each alternative are highlighted, by contrasting the

advantages and disadvantages of both types of FDI. Based on this analysis, some

conclusions are drawn in the end concerning the most important factors that influence the

decision of a company whether to choose a greenfield investment or an acquisition.

Key-words: FDI, greenfield, acquisition, TNCs

1. Introduction

There is a whole strand of literature concerning foreign direct investment (FDI) as

an alternative of entering markets, as opposed to exporting or licensing. Fewer

studies focus particularly on the comparison between the two main types of FDI,

namely greenfields and acquisitions. In this paper, mergers are incorporated in the

‘acquisition’ category, their number being insignificant out of the aggregate sum of

mergers and acquisitions at international level. In-depth research of this comparison

was undertaken by Kogut and Singh (1988), Svensson (1998) and Harzing (2000). A

comprehensive guide dedicated to the similarities and differences between

greenfields and acquisitions is the World Investment Report (UNCTAD, 2000),

issued in the peak year of worldwide FDI until that time. Newer studies that have

dealt with this matter at regional level are those of Meyer and Estrin (2001), Nisbet

(2003), Grunfeld and Sanna-Randaccio (2005), Haar and Marinescu (2014).

Empirically, the ‘90s and 2000s brought a dominance of acquisitions in

worldwide FDI as opposed to greenfields. During the 1990s, acquisitions became a

widely used mode of transnational corporation (TNC) entry and expansion in

virtually all industries. Indeed, they drove the FDI boom during the second half of

the 1990s. But it was in services that most acquisitions took place, e.g. banking,

telecommunications, electricity and water (UNCTAD, 2004). The explanations for

the surge of acquisitions are to be found in the changes occurred in the global

1 Transilvania University of Braşov, marinescu@unitbv.ro