Explain why MNEs prefer acquisition
instead of greenfield FDI. Why do foreign governments encourage greenfield FDI?
Chapter 15
Foreign Direct Investment and Collaborative Ventures
#Cavusgil #3edition #ForeignDirectInvestmentandCollaborativeVentures
#FDI #CollaborativeVentures #Chapter15
International Business: The New Realities, Global
Edition, 3e (Cavusgil)
Cavusgil, 3edition, Foreign Direct
Investment and Collaborative Ventures, FDI, Collaborative Ventures, Chapter15
Answer: MNEs may favor acquisition over greenfield FDI because, by acquiring an existing company, the MNE obtains ownership of existing assets such as plant, equipment, and human resources, as well as access to existing suppliers and customers. In addition, acquisition provides an immediate stream of revenue and accelerates the MNE's return on investment, as compared to greenfield FDI. By contrast, host-country governments usually prefer that MNEs undertake greenfield FDI because, compared to acquisition, it creates new jobs and production capacity, facilitates technology and know-how transfer to locals, and improves linkages to the global marketplace. Many governments offer incentives to encourage greenfield investments, which may be sufficient to offset the advantages normally provided by acquisition-based entry.
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