Let’s Understand The Main Advantages And Disadvantages Of Greenfield Investment
Greenfield investment stands out as a pretty interesting method that you can use in order to open a new business. We can define it as a venture in which finances would be used in order to create a business physical facility that is new in one location where such a facility is not present at the moment.
The term is used because of the fact that the original meaning was linked to finding company buildings that were located on green fields. Nowadays we use the term in an association with modern business communication.
To keep things as simple as possible, the Greenfield investment will start with a bare ground and will build from that. Great examples of US companies that invested in such projects all around the world are Starbucks, McDonald’s and Coca Cola.
Greenfield Investment Advantages:
- Scope and scale economies are achieved when referring to marketing, research, development, purchasing, transportation and production.
- The entire business will be controlled. With other investment options, this is not possible.
- Your long term strategy can be much more lucrative and implementation will surely be better.
- Potential customers see that you are committed to the market.
- The work that you do is in a relationship with the appropriate authorities ever since the start.
- You can take advantage of vendor financing options.
- You can properly control your staff and your brand.
- Various press opportunities are available since you open a new but old business.
On the whole, the advantages mentioned here are definitely important and need to be considered. We have to say that when compared with other options, it is better to use Greenfield investment because of the advantages above. However, just as with any other investment, disadvantages also exist.
Greenfield Investment Disadvantages:
- The costs associated with opening a brand new Greenfield location are always higher.
- It will be tougher to overcome the already established competition.
- Entry barriers are almost always costly.
- You can end up having to spend years in order to entry the market.
- Multinational enterprises can be a disadvantage on the short term because of governmental regulations.
Should You Consider Greenfield Investment?
If you have the necessary finances, it is a guarantee that you need to do this. Have patience and always make sure that the investment is the best possible move for you at the end of the day. It is not always something that you want to do but if the advantages outweigh the disadvantages, it is a guarantee that you will end up making a correct choice.