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Brownfield Investment - Explained

What is a Brownfield Investment?

Written by Jason Gordon

Updated at April 25th, 2022

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Table of Contents

What is a Brownfield Investment?Pros of a Brownfield InvestmentCons of a Brownfield Investment

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. 

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.

Other Related Topics

  • Dollarize
  • Foreign Direct Investment
  • Greenfield Investment
  • Brownfield Investment
  • Portfolio Investment
  • Purchase Power Parity
  • Relative Purchasing Power Parity
  • Burgernomics
  • Tobin Tax
brownfield investment

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