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.

Related Topics

• What Does it Mean to Dollarize
• Foreign Exchange Market
• Who Demands and Supplies Currency in a Foreign Exchange Market? 
• Foreign Direct Investment
• Greenfield Investment
• Brownfield Investment
• Portfolio Investment
• Hedging
• Dealers in the Interbank Market
• Weak and Strong Currency
• Depreciation of Currency 
• Appreciating and Depreciating Currency
• Exchange Rate
• Real Effective Exchange Rate (REER)
• Limited Flexibility Exchange Rate System
• Expectations about Future Exchange Rates Shift Demand
• Expected rate of return shift demand and supply for a currency
• Relative Inflation Shifts Demand and Supply for a Currency
• Purchasing Power Parity (PPP)
• Relative Purchasing Power Parity
• Law of One Price
• Burgernomics
• Balassa-Samuelson Effect
• Arbitrage
• Tobin Tax
• Foreign Exchange Market
• Foreign Exchange Contract
• Arbitrage
• Hedge
• Why Central Banks Care About Exchange Rates
• How Do Exchange Rates Affect Aggregate Demand and Aggregate Supply? 
• What Causes Exchange Rate Fluctuations?
• Exchange Rate Policy
• Fixed Exchange Rate 
• Floating Exchange Rate
• Hard and Soft Peg
• What is a Merged Currency?
• Capital Control
• Exchange Stabilization Fund