Brownfield Investment - Definition
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What is a Brownfield Investment?
A Brownfield investment, also known as brownfield, is when a firm or a government body buys or contracts an existing facility to launch their new activity. The alternative strategy to brownfield investment is greenfield investment where a new production unit is constructed.
Brownfield investment is one of the plans used in foreign-direct investment. Foreign direct investment is where a company or individual invests in a business established in another country.
Pros of a Brownfield Investment
Brownfield investment has a number of advantages
- The company has the advantage of accessing a new market fast.
- The initial cost is reduced since there are an already existing facility and utilities.
- In some cases, the company can lease or buy a production unit that already has the employed workers, in this scenario, the cost of staffing and training is reduced.
- The already established facility may have existing licenses and government approvals making the starting process easier.
- The facility already has the equipment; this reduces the cost to only maintenance cost and modification cost if any.
Cons of a Brownfield Investment
- The facility and equipment may be too old which may cause a rise in maintenance cost.
- The difference in the companys culture may be a problem, especially when acquiring a company with the employed workers. The workers may be forced to embrace the new culture and policies of the new company.
- Sometimes the facilities could be located in an area that is not attractive and hard to develop.
- The expansion of the company is limited by using an already constructed building.
Academic Research on Brownfield Investments
- Brownfield entry in emerging markets, Meyer, K. E., & Estrin, S. (2001). Journal of international business studies, 32(3), 575-584.
- Bankers, developers, and new investment in brownfield sites: Environmental concerns and the social psychology of risk, Yount, K. R., & Meyer, P. B. (1994). Economic Development Quarterly, 8(4), 338-344.
- Assessing the effect of publicly assisted brownfield redevelopment on surrounding property values, De Sousa, C. A., Wu, C., & Westphal, L. M. (2009). Economic development quarterly, 23(2), 95-110.
- Brownfield redevelopment strategies in the United States, Kushner, J. A. (2005). Ga. St. UL Rev., 22, 857.
- Regulation of foreign investment in historical perspective, Chang, H. J. (2004). The European Journal of Development Research, 16(3), 687-715.
- European Union enlargement and the foreign direct investment channel of industrial relations transfer, Marginson, P., & Meardi, G. (2006). Industrial Relations Journal, 37(2), 92-110.
- FDI Policy, Greenfield Investment and Crossborder Mergers, Qiu, L. D., & Wang, S. (2011). Review of International Economics, 19(5), 836-851.
- The contribution of foreign direct investment to transition revisited, Kalotay, K. (2001). J. World Investment, 2, 259.
- Barriers to brownfield redevelopment: lessons learned from two Great Lakes states, Coffin, S. L., & Shepherd, A. (1998). Public Works Management & Policy, 2(3), 258-266.
- Background note on insurance and brownfield investment decisions, Meyer, P. B. (1998). Public Works Management & Policy, 2(3), 243-250.
- Brownfield Acquisitions, Estrin, S., & Meyer, K. E. (2011). Management International Review, 51(4), 483.