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FEM (TISPRO), Regulation 2 (XXVII) : Greenfield Investment
FEM (TISPRO), Regulation 2 (XXVII) : Greenfield Investment
In general sense, we can say that Investment means the investment cash for profit action or
process. Investing is allocating cash in the expectation of some future advantage.
Greenfield Investment
Greenfield investment means starting from the beginning. Investing in Greenfield is investing
in fresh crops. It establishes an investor or company's fresh manufacturing capability. In a
greenfield investment, company creates activities in a foreign country or the corporation
builds fresh equipment (corporate office, production facility, etc.) from the ground up cross-
border.
According to the Bureau of Economic Analysis (BEA), Investment in Greenfields is a project
"where overseas investors set up a fresh company or grow an current company on US soil."
1
RESERVE BANK OF INDIA (FOREIGN EXCHANGE DEPARTMENT), FEM(TISPRO)
(September20,2019 at 5.00 pm)
file:///C:/Users/Pradeep/Downloads/N20RB29574DA17294D5C93E4951B2FC86666%20(1).pdf
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2
A greenfield investment is a type of market entry frequently used only to obtain the greatest
degree of control over overseas operations by a business. It can be contrasted with other
foreign direct investments such as buying foreign securities or acquiring a majority interest in
a foreign company where the parent company exercises little or no control over regular
business activities. Under this, you can’t invest in your country in that particular sector.
In addition to future tax breaks or subsidies in setting up a greenfield project, the overriding
objective of such an investment is to obtain a high amount of control over company activities
and prevent intermediate expenses.
Most overseas businesses think they should begin all from scratch. If they became interested
in FDI, they would create their own factory in another nation, train individuals to work in
their office / institution, and attempt to give offers according to the country's culture. For
example ,McDonald and Starbucks. They both began all from scratch and are now
India's leading brands. These are called financing in the greenfield.
For Example - Bangalore International Airport Limited is designing, building, owning and
operating India's first private greenfield airport owned and operated. Here private sponsors
have a 74% stake in BIAL while the left 26% are held by the government.
2
CFI, Greenfield Investment
https://corporatefinanceinstitute.com/resources/knowledge/strategy/greenfield-investment/
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Report3
Between 2005 and 2016, India stayed the Commonwealth's top recipient of greenfield FDI,
more than doubling its 10-year receipt. India is the leading nation to attract greenfield FDI,
not just from the commonwealth, but from the globe as well. It first surpassed China as
Greenfield FDI's largest location in 2015.
Advantages
Following the Greenfield strategy, the business can fully regulate the layout of its
equipment, establish its own laws and policies without a process of transformation,
control all manufacturing operations and train its staff to the norms of the business.
This provides a lot more usability and monitoring than a brownfield.
This is always a solid long-term approach with market engagement after
comprehensive studies and study.
High control over the brand design and workers.
Create employment for the economy that invests in the greenfield.
Disadvantages
Extremely risky investment – the most risky type of foreign direct investment is
greenfield investment -In a greenfield investment, an investor has to put his stake at
greater risk because it might be possible that he might suffer greater loss than as
compared to ground field investment.
The price of the project is, of course, the primary challenge for a greenfield
investment strategy, as it includes construction, carrying and purchasing everything
that the business wants to function under international legislation and regulations, and
often takes years. In this situation, the development process is slower than a
brownfield.
Any unexpected changes in the overseas political and social setting or public
connection could present an instant danger to the business. A cessation of activities
for a greenfield investment would result in the business having a disastrous loss.
Troubles in receiving the needed licenses and accessing resources could slow the
process of development.
3
WallStreetMojo, Foreign Direct Investment,
(September20,2019 at 5.00 pm)
https://www.wallstreetmojo.com/foreign-direct-investment/
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occurs, the lack of vegetation is depicted by a brownfield lacking in green, this is a
Greenfield when speaking of a fresh soil that was not previously used for manufacturing.
“ ”4
When a business wishes to invest and begin activities in a new nation, a brownfield
investment is often conducted but does not want to incur elevated start-up expenses
connected with a greenfield investment. Entering a fresh overseas market is the fundamental
rationale behind a brownfield investment. In a brownfield financing, either through a merger
and acquisition (M&A) deal or lease current equipment in the overseas country, the business
invests in current equipment and installations. It is possible to contrast a brownfield
investment with a greenfield investment in which the business builds a new factory from the
ground up.
For example
Company A presently has its headquarters in the United States and is looking to expand
activities to India. The CEO decided to make a brownfield investment to "test the waters"
because of uncertainty in the global market for their item. Furthermore, there are countless
permits and grants to be obtained in India, and it has been determined that such effort-
consuming operations can be removed by obtaining a local business with licenses already
authorized. Then in India, Company A selects a prospective target business. Company A is
capable of growing rapidly into the market by making a brownfield investment by purchasing
the target business. Furthermore, it can prevent important overseas investment expenses such
as constructing its own equipment or recruiting and training fresh personnel participants
through a brownfield investment.
Famous Indian company example of Brownfield investment
During 2007-08, Tata Motors was India's biggest automobile firm. It was the world's second
largest Bus and truck manufacture company. Tata purchased the companies of Jaguar Land
Rover in June 2008. The Indian automaker was able to acquire copyrights, production plants,
two production centers in the United Kingdom, and a world-renowned National Sales
Companies network through the takeover.
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In some cases, the business may lease or purchase a production unit already employed
by the employees, and the cost of management and coaching will be reduced in the
scenario.
The established grants and state authorizations of the defined plant may facilitate the
start of the process easier.
Equipment is already available for the plant; this lowers the cost for repair and
alteration costs only if any.
5
The Business Professor, Definition and impact of Brownfield investment,
(September20,2019 at 5.00 pm)
https://thebusinessprofessor.com/knowledge-base/brownfield-investment-definition/
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FAMOUS CASES IN INDIA
“POSCO CASE STUDY (Greenfield Investment)
POSCO India Private Limited is a Korean corporation POSCO Indian subsidiary. India's
biggest Foreign Direct Investment agreement was the South Korean Memorandum of
Understanding in 2005.
In 2005, POSCO, the fourth biggest steelmaker in the world, signed a MOU with the odisha
govt to set up a 12-million-ton steel capacity project in the district of Jagatsinghpur. At that
period, the FDI was about 12 billion. When the government of Odisha signed the MOU with
POSCO, it promised to provide the company with 4004 acres of coastal land. Despite the
development of industrial infrastructure.
The company did not have a single acre at its disposal. This project had difficulty since the
beginning that villagers opposed the purchase of their property on a fertile plain on the shore
of the Bay of Bengal near Paradip, renowned for its betel wines and about 3000 acres of the
4004 acres of land needed for the steel plant was to come from the forest, its sandy landscape
with about 5000 betel wines.
This project broke the society of the town and led to fights between Pro – POSCO and Anti-
POSCO communities, claiming good life. The project was also regarded to be very
detrimental to the environment as the plant site consisted of pristine coastal environment,
with active nesting for the critically threatened Rridley Turtles olive and horse shoe crabs.
Thus N.C. Saxena committee was set up to investigate the matter and gave the report that the
forest clearances of the POSCO project were a full breach of the Forest Right Act.
POSCO India lastly decided to leave and move their plan to Maharashtra and Gujrat due to
continuing protest.”6
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The contract for equipping the airport with technical System was given to Siemens Industrial
Solutions and service Groups and Siemens India Ltd. The Contract of supplying, engineering
and installing of Airfield lighting and communication system, baggage handling, power
supply and other airport operations were given to Zurich. To take care of acquisition of land
efficiently, KSIIDC was in charge and the overall project coordination in charge was AAI.
This Greenfield Investment was appreciated as it developed the Airport capacity and it was
considered as one of the great examples of Greenfield Investment. Bangalore International
Airport is still in operation with the help of foreign investment.”7
7
Alok Gupta, Greenfield Airport Development in India: A Case Study of Bangalore International Airport,
(September 20,2013 at 6.00 pm)
http://vslir.iima.ac.in:8080/jspui/bitstream/11718/11494/1/CMS-PP-217-
Greenfield_Airport_Development_in_India-151-Gupta_b.pdf
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SlideShare, Kingfisher deccan deal,
(Feb 28,2019 at 8.00 pm)
https://www.slideshare.net/saiwagh2001/kingfisher-deccan-deal
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“HUTCH VODAFONE CASE (Brownfield Investment)
Vodafone Group is a mobile network operator based in Newbury, Berkshire, England, United
Kingdom. It is by turnover the world's largest mobile telecommunications network business
and has a market value of about £ 100bn (December 2007). With more than 200 million
clients globally, it now has activities in 25 nations across 5 continents and 40 partner
networks. According to industry analysts, Vodafone has a plan to look for fresh markets away
from saturated advanced nations that still have the untapped ability to deliver increased
earnings in the telecom industry.
India with more than 150 million mobile subscribers and the highest number of subscribers in
the world (7.34 million in July 2007) and a booth as the fourth-largest mobile market in the
world behind China, the U.S. and Russia was undoubtedly a target market for their strategy.
India has one of the largest tele-density growth rates among developing nations (2 percent)
sufficing the characteristics of the market structure that Vodafone sought. Accordingly,
negotiations on Hutchison Essar's takeover began as early as the first half of 2006 as shortly
as Hutch announced that it would sell its inventory in Hutchison Essar.
At that time, Hutch Essar had 16-circle operations covering 86 percent of India's mobile
customer base, with more than 38.5 million customers, according to India's Cellular
Operators Association, November 30, 2007. The total is 41,145,413 or 23.06 percent of
India's total 178,414,676 mobile GSM connections until January 2008. It was after Bharti
Airtel, second-largest mobile telecom company. The announcement of Hutch's share sale in
Hutchison Essar in such a situation offered an appealing chance to make a grand entry into
the Indian market.
Two Indian firms also counter-bid for a couple of years in one of the most hotly fought
takeover battles. The Foreign Investment Promotion Board (FIPB) has lastly provided a
smooth chit to Hutchison-Essar's $11.1 billion takeover offer by Vodafone on April 28, 2007,
paving the way for the British telecom giant to mark its entry into the fourth biggest mobile
industry in the world and the second fastest increasing mobile market in Asia.
The company was re-branded as Vodafone Essar after receiving the necessary government
approvals regarding the Vodafone Group's acquisition of a majority. On 20 September 2007,
the marketing brand was formally converted to Vodafone. This agreement was welcomed at
the ground level.”9
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the most, is Greenfield Investment. So, the government has given more emphasis on the
Greenfield Investment. As India retained its place as one of the Commonwealth's greenfield
FDI apex beneficiaries for the 2005–2016 era. In 2015 and 2016, India retained its first place
in greenfield FDI investments.
In 2016, India gained worldwide capital (greenfield) investments with $62.3 billion in FDI
proposals, according to FDI Intelligence (an FT information division). The easily adaptive
and liberal policy leadership and good trade and trade environment of India's government has
ensured the flow of foreign capital into the country where countless late initiatives such as
liberating FDI laws in industries including telecommunications, power exchanges, defense,
government-backed oil refineries, and stock markets have been taken. According to the data
published by International Finance Corporation (IFC), India committed to significantly
decrease its GDP intensity emissions between 2018 and 2030 by providing a potential $3
trillion of environmentally friendly investment.
India need more development and employment opportunity and it is Greenfield Investment
only that can provide such atmosphere and condition in the market. So the conclusion can be
drawn that Greenfield Investment is suitable for Indian Economy and government is also
more emphasised towards it.
CONCLUSION
Under this, we study about the concept of greenfield investment and brownfield investment
and its participation in India. After studying both things, I found that both are very important
for country’s economy and development but according to me greenfield investment is better
for Indian economy because India needs more investments in new sectors which will bring
new & better technologies and will generate employment. Greenfield Investment will also
lead to expansion of Market Size and which will result into reduction of Monopoly in various
sectors.
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