Foreign Entry Modes Essay Example | Topics and Well Written Essays - 2250 words

Foreign Entry Modes - Essay Example Foreign Entry modes: Evaluate the use of a Greenfield site compared to an acquisition for entry to a foreign country Hill (2007) contends that FDI takes on two main forms: Greenfield investment, mergers and acquisitions. Hill (2007) went further and argue that, in a Greenfield investment, the firm in question establishes a new operation in a foreign country while the later involves acquiring or merging with an existing firm in the country. Acquisition however is usually hostile, because this is usually done against the wish of management (e.g. CEMEX's acquisition of RMC of Britain and Southland in the United States (Hill 2007, Buckley 2004). In the years that follow after the Second World War, trade and investment have become increasingly intertwined. Within the first few decades after the war, most countries from Asia and Africa viewed Foreign Direct Investment (FDI) with suspicion, and wariness and the flow of FDI towards these areas has been relatively slower (Buckley 2004, Sumelong et al., 2003). To most of these countries, the presence of Multinational Enterprises (MNEs) was seen as an impeachment to their national sovereignty. The situation was further aggravated with previous colonial experience and the fact that to some, FDI was a modern form of economic colonialism (Sumulong, Fan & Brooks 2003). According to the World Trade Organisation (WTO), the flow of FDI has substantially changed the international economic landscape. From1980 it has been argued by a handful of researchers (e.g. Hill 2007, Sumelong et al 2003, Buckley 2004, and Reis & Head 2005) that FDI outflow has overtaken the growth of world exports. The expansion in FDI became relatively pronounced during the period 1985-2000, a period characterized with scores of mergers and acquisitions, the Asian financial crises, the oil boom and privatization programs in Latin America (Hill 2007, Sumelong et al., 2003). In the year 2000, FDI outflow stood at $1.4 trillion (Hill 2007, Sumelong et al., 2003). Figure 1 below gives a summary of FDI and export growth between 1980-2000. Sources: Exports: IMF 2003; FDI Outflows: UNCTAD 2002 Having said this, in the remaining part of the paper I will be comparing Greenfield investment to acquisition as an entry mode strategy. The second section of the paper discusses Green field investment, while the last section provides the conclusion and recommendations. 1.1Green Field Site Entry Strategy into a Foreign Country Where a firm chooses to invest through the setting up of new operations in a foreign country often refered to as Greenfield venture. On the other hand, where the company acquires 100% ownership of an existing business to promote it activities is refered to as acquisition (Hill 2007). Ownership advantages resulting from Multinational Enterprise operations MNE can be looked upon from two directions. That is in a situation where full ownership prevails and a situation where ownership is shared with local partners. Tseng Hui-Chuing (2007) argued that MNEs equipped with capabilities to attain assets seeking objectives are more likely to choose an