Companies that want to expand their interests internationally generally make physical investments and purchases in another country. This is known as foreign direct investment (FDI). They purchase, lease, or otherwise acquire assets in their host country including facilities such as plants, office space, or other types of buildings. These acquisitions may come in the form of new or existing facilities. In the business world, these investments are called greenfield and brownfield investments. But what exactly are they and how do they differ?
Read on to find out more about greenfield and brownfield investments, and the major differences between the two.
Key Takeaways
- Greenfield and brownfield investments are two types of foreign direct investment.
- With greenfield investing, a company will build its own, brand new facilities from the ground up.
- Brownfield investment happens when a company purchases or leases an existing facility.
Greenfield vs. Brownfield Investments: An Overview
As noted above, greenfield and brownfield investments are two different types of foreign direct investment. Both involve companies and production facilities in different countries. But that's primarily where the similarities between the two end.
In a greenfield investment, parent company opens a subsidiary in another country. Instead of buying an existing facility in that country, the company begins a new venture by constructing new facilities in that country. Construction projects may include more than just a production facility. They sometimes also entail the completion of offices, accommodations for the company's staff and management, as well as distribution centers.
Brownfield investments, on the other hand, occur when an entity purchases or leases an existing facility to begin new production. Companies may consider this approach a great time and money saver since there is no need to go through the motions of building a brand new building.
Companies may need to undergo a permitting process for greenfield investments, but can skip this step with a brownfield investment.
Greenfield Investments
The term greenfield refers to buildings constructed on fields that were, literally, green. The word green is also synonymous with the word new, which may allude to new construction projects by companies. These companies are generally multinational corporations that begin a new venture from the ground up, especially in areas where there are no facilities that already exist.
There are several reasons why a company may decide to build a new facility rather than purchase or lease an existing one. The primary reason is that a new facility offers design flexibility along with the efficiency to meet the project's needs. An existing facility forces the company to make adjustments based on the present design. All capital equipment needs to be maintained. New facilities are typically much less costly to maintain than used facilities. If the company wants to advertise its new operation or attract employees, new facilities also tend to be more favorable.
There are also downsides to constructing new facilities. Building from scratch can bring more risk as well as higher costs. For example, a company may have to invest more initially when it decides to build from scratch to fulfill feasibility studies. There may also be problems with local labor, local regulation, and other hurdles that come with brand new construction projects.
Brownfield Investments
With brownfield investing, companies scout available buildings in the host country that are compatible with their business models and/or production processes. If the existing national or municipal government requires licenses or approvals, the brownfield facility may already be up to code. In cases where the facility previously supported a similar production process, brownfield investments can be a real coup for the right company.
In an environmental context, the term brownfield may refer to the fact that the land on which a facility sits may be contaminated from the previous owner's activities. This is distinct from a brownfield investment strategy.
The clear advantage of a brownfield investment strategy is that the building is already constructed, therefore reducing the start-up costs. The time devoted to construction can be avoided as well.
Brownfield investments run the risk of leading to buyer's remorse. Even if the premises had been previously used for a similar operation, it is rare that a company finds a facility with the type of capital equipment and technology to suit its purposes completely. If the property is leased, there may be limitations on what kinds of improvements can be made.
FAQs
Greenfield and brownfield investments are two types of foreign direct investment. With greenfield investing, a company will build its own, brand new facilities from the ground up. Brownfield investment happens when a company purchases or leases an existing facility.
What is the difference between greenfield and brownfield sites? ›
Brownfield sites are typically located in urban areas because they've previously been built upon. On the other hand, greenfield sites have never been built on and can be found in the countryside or rural areas.
What is a brownfield investment? ›
A brownfield (also known as "brown-field") investment is when a company or government entity purchases or leases existing production facilities to launch a new production activity. This is one strategy used in foreign direct investment.
What is a greenfield investment? ›
A green-field (also "greenfield") investment is a type of foreign direct investment (FDI) in which a parent company creates a subsidiary in a different country, building its operations from the ground up.
Why is greenfield better than brownfield? ›
Flexible, cheaper development
As a greenfield site hasn't been developed upon before, it can significantly reduce the amount of site clearance required. For example, there are no buildings to demolish and no industrial roads or debris to remove.
What defines a brownfield site? ›
The EPA defines a “brownfield site” as “real property, the expansion, redevelopment, or reuse of which may be complicated by the presence or potential presence of a hazardous substance, pollutant, or contaminant.” A “brownfield” generally refers to a parcel of land that was previously used for industrial purposes and ...
What are examples of brownfield sites? ›
In simple terms, a brownfield is property that is either contaminated or that people think might be contaminated. Common examples of brownfields include former gas stations, metal plating facilities, and dry cleaners.
What is the advantages of brownfield investment? ›
Advantages of a Brownfield Investment
The ability to gain access to a new foreign market swiftly. Lower fixed costs due to using already established facilities, infrastructure, and network. Lower staffing and training costs, due to the presence of already-employed workers at the facility.
What are brown field assets? ›
Brownfield investments are those in which a private company or investor purchases or leases an existing infrastructure project or production facility to carry out new production activity. In the case of the National Monetization Program, the government intends to lease rather than sell brownfield assets.
What is greenfield advantage? ›
The advantages of greenfield investments include increased investor control relative to investing in an existing local business, as well as the opportunity to form marketing partnerships and avoid intermediary costs.
Brownfield Projects Engineering. Brownfield engineering relates to engineering activities (e.g. design, commissioning) that interface to, upgrade or modify an existing operation or plant. Performing a brownfield engineering project requires an approach that is different to greenfield projects.
Why is greenfield investment better? ›
Advantages of a Greenfield Investment
High level of control over business operations. High level of quality control over the manufacturing and sale of products and/or services. High control over brand image and staffing.
What is the difference between greenfield investment and acquisition? ›
International acquisitions involve acquiring a company that is already in existence. A green field investment involves building completely new business through a business plan developed by the parent company.
What are the advantages and disadvantages of brownfield sites? ›
Advantages and disadvantages of brownfield sites
- More likely to get planning permisson.
- Cheaper as dont have to put road access and drainage in.
- Stop city expansion as already in the city.
- Closer to the CBD.
Advantages include: Reduces sprawl and destruction of greenspace. Contributes to redevelopment of a city section.
...
Disadvantages include:
- Infrastructure installation often required.
- Further away from the city and its services.
- Longer commutes for workers.
- May be viewed as urban sprawl and a negative environmental impact.
* Typical businesses that leave behind such contaminated sites include:
- Railroads.
- Gas stations.
- Oil refineries.
- Dry cleaners.
- Liquid/chemical storage facilities.
- Steel and heavy manufacturing plants.
Buildings and surrounding land that are currently in use for agricultural or forestry purposes are excluded from the definition set out above. Land in built-up areas that has not been developed previously (e.g. parks, recreation grounds, and allotments are also not classed as brownfield.
Can you build brownfield? ›
There are some hurdles to be cleared when building on brownfield land, and because the early stage risk is so large, very few brownfield sites will reach the market in an oven-ready state. These challenges include: They can be much trickier to build on.
What do you understand by greenfield and brownfield development? ›
The meaning is similar across domains: greenfield describes new builds on undisturbed terrain, while brownfield refers to the continuation of existing projects or rebuilds on the site of older developments.
What is the most common contaminant found in brownfields? ›
The three most common contaminants found in brownfields are lead, petroleum, and asbestos but there are many other possible less common contaminants including volatile organic compounds (VOCs) and arsenic.
Therefore, Greenfield Investment Strategy is a getting/investing Foreign Direct Investment (FDI) in the target country. Under this, the investing company establishes a new operating facility or expands its existing facility in a foreign country. Here the word Green resembles an altogether 'New' investment.
What is a greenfield opportunity? ›
What is a Greenfield Opportunity? In the world of software development, Greenfield refers to a software development opportunity where the solution can be developed for an entirely new environment.
Which of the following is an example of brownfield development? ›
Some examples of Brownfield Use
Examples include: Atlantic Station Project in Atlanta in the USA which was one of the first brownfield developments in the USA. This was redeveloped as a park and monumental significance for the people of Atlanta.
