Brownfield Investment - Explained
What is a Brownfield Investment?
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Table of Contents
What is a Brownfield Investment?Pros of a Brownfield InvestmentCons of a Brownfield InvestmentWhat 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.
Back to: STRATEGY, ENTREPRENEURSHIP, & INNOVATION
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.
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