Implications of Greenfields and Acquisitions on Host Countries

• Author: Marinescu N.
• Pages: 209-214

Bulletin of the Transilvania University of Braşov

Series V: Economic Sciences • Vol. 10 (59) No. 1 - 2017

Implications of Greenfields and Acquisitions on

Host Countries

Nicolae MARINESCU1

Abstract: This paper investigates the implications of greenfields and acquisitions as entry

modes used by transnational corporations (TNCs) on host countries. First, the impact of the

two types of foreign direct investment (FDI) on host economies is analyzed comparatively, by

sifting through the main opinions in the literature. The focus is on transition countries,

where most of the acquisitions occurred within the privatisation process. The analysis is then

applied to the particular case of Romania. By means of statistical data, the distribution of

FDI flows on greenfields and acquisitions is presented. Moreover, their impact on the

economy is analyzed using the ranking of the largest companies in Romania by turnover.

Based on the results of the analysis, some conclusions are drawn concerning t he main

implications brought about by greenfields and acquisitions.

Key-words: FDI, greenfield, acquisition, TNC

1. Introduction

In the literature as well as in practice, foreign direct investment (FDI) is inevitably

linked with transnational corporations (TNC), as these are the main vehicles for

pursuing FDI. A TNC is a business firm incorporated in one country that has

production and sales operations in several other countries (Eun and Resnick, 1998).

FDI as an entry mode into foreign markets can embrace two main types,

namely greenfields and acquisitions. There is a dedicated strand of literature for this

comparison. In-depth research on this matter was undertaken by Kogut and Singh

(1988), Svensson (1998) and Harzing (2000). The World Investment Report 2000

(UNCTAD, 2000) is a comprehensive guide dedicated to the similarities and

differences between greenfields and acquisitions. Some other studies that have dealt

with this comparison at regional or national level are those of Meyer and Estrin

(2001), Nisbet (2003), Haar and Marinescu (2014).

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

worldwide FDI as opposed to greenfields, especially in services. Companies looked

beyond frontiers to acquire targets due to technology gaps, poor sales of local firms,

as well as part of their global strategy to strengthen their own position in the market,

1 Transilvania University of Braşov, marinescu@unitbv.ro