The Greenfield investment strategy also has some significant drawbacks and disadvantages as well. “Although an IGI managerial team may have sufficient experience in running a foreign affiliate in the host country, it may not have sufficient familiarity with the parent company. Hence, the team may find it difficult to manage all the complexities of starting a business from scratch.
Examining the case of Euro Disney, while the exact reasons for its initial poor performance are not yet fully known, one probable factor is the difficulties in transferring its theme park successes from one culture to another.” (Newburry & Ziera, 1997) The business often requires extensive and accurate information pertaining to the market, the competitors as well as the trends specific to the consumers. A high level of risk is associated with such a venture and as a result a high degree of commitment is required for it. Moreover the costs of the investment form scratch for the company can be very extensive in the short run. The company also needs to establish relationship with the resources and alliances in the local market as well as establish the required staff and financial resources. The federal and at state government of the foreign country have to be taken into context for operating in the market and the legal specifications according to the region have to be complies with by the company.
Aside form the above mentioned disadvantages this strategy is also a much lower mode of market entry as it requires time to set up infrastructure in a new market and start operation, while even more time is required to establish a position for a business in the market. Aside from this the political risks of the region increase the risk borne by the company through Greenfield ventures.
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