The rationale that exits for expanding business into new geographical regions and international markets is to expand and take advantage of the new untapped market and earn profits form increased revenues and market share. In the case of the Greenfield investment the foreign direct investment is employed in establishing a new business venture in the region which is usually a subsidiary or a 100 percent owned business of the parent company. “Greenfield sites are investments where a new plant or business is built in the target market.
Construction of new buildings is likely, and the new facilities will house all functions of the company, including sales, marketing, production, distribution and management. This type of investment is extremely costly in terms of start up and capital equipment costs. It does, however, show commitment to the market, which will reassure and please the foreign government which will see the investment as a source of employment and economic benefit.” (‘Market Entry Strategies’) In most cases the Greenfield investments are owned entirely by the parent company, unless specifically stated in the legal requirements of the local government. Businesses tend to favor the Greenfield investment for market entry as it provides them with an opportunity to establish them selves specific to the target market. Aside from this it is also possible for restrictions to be present in the regarding lack of infrastructure, technology or facilitating channels. The company as a result can choose the Greenfield approach to overcome these constraints
Aside from simply setting up Greenfield investments, the international businesses are also forming strategic alliances with local as well as global brands and businesses to strengthen their presence in the international market. These alliances usually aid the company in their finances, as well as in positioning the new business and its products and services in the new market relative to the competitors.
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