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. 

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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