FDI without Alliances -
Wholly owned subsidiaries
Greenfield investment - is the establishment of a new wholly owned subsidiary. It is often complex and potentially costly,
but it is able to provide full control to the firm
and has the most potential
to provide above average return. “Wholly owned subsidiaries and expatriate staff are preferred in service
industries where close contact with end customers and high levels of
professional skills, specialized know how, and customization is required.” Greenfield investment is more likely preferred where physical
capital intensive plants are planned. This strategy is attractive if there are
no competitors to buy or the transfer competitive advantages that consists of
embedded competencies, skills, routines, and culture.
Greenfield
investment is high risk due to the costs of establishing a new business
in a new country. A firm may need to acquire knowledge and expertise of the
existing market by third parties, such consultant, competitors, or business
partners. This entry strategy takes much time due to the need of establishing
new operations, distribution networks, and the necessity to learn and implement
appropriate marketing strategies to compete with rivals in a new market.
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