Green-field and brown-field investments unveiled

Green-field and brown-field investments are two different types of foreign direct investment (FDI). Green-field investments occur when a parent company or government begins a new venture by constructing new facilities in a country outside of where the company is headquartered. Brown-field investments occur when an entity purchases an existing facility to begin new production.

There are several reasons why a company opts to build its own new facility rather than purchase or lease an existing one. The primary reason is that a new facility offers the maximum design flexibility and efficiency to meet the project's needs. An existing facility often forces the company to adjust based on the present design.

Additionally, 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.

The clear advantage of a brown-field investment strategy is that the building is already constructed. The start-up costs may be greatly reduced. The time devoted to construction can be avoided as well.

If the existing national or municipal government requires licenses or approvals, the brown-field facility may already be "up to code." In cases where the facility previously supported a similar production process, brown-field investments can be a real coup for the right company.

Brown-field 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 looking 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.