Increasing Agricultural Productivity:
Encouraging Foreign Direct Investments in the COMCEC Region
19
Source: ICA, 2013.Finally, at the top end of the spectrum, a foreign direct investment either through
an acquisition or greenfield investment can be used to strengthen the foreign market position.
This is a strategic company decision, requiring substantial investments and a dedicated long-
term involvement. The advantages are full ownership and control, a strong signal to customers
and other stakeholders, circumvention of duties and other barriers, and possible incentive
benefits.
An acquisition shortens the time cycle and the company can benefit from existing sales channels
and organizational capabilities (see table 6). But cultural risks and difficulties in managing
change can lead to frustrated processes and hidden costs.
Table 6 Advantages and Disadvantages of Cross-Border Merger & Acquisition as FDI Mode
Mode (including
definition)
Advantages Disadvantages
Cross-border M&A
To establish a wholly
owned affiliate by acquiring
(or merging with) an
existing firm in a foreign
market
• Quick access to the
market
• Benefit from existing
clients and sales
channels
• Difficult to find the
right target
• Possible
governmental
intervention /
politics
• Management
challenge – high risk
of conflicts
Source: ICA, 2012.
Contrary to greenfield FDI, this type of entry mode is preferred when time is of the essence.
However finding the right acquisition partner requires an in-depth due diligence, with sometime
Representation office
Export and sales agents
Depth of
involvement
in foreign
markets
Investment
volume
Licensing / franchising
Export
Cross border M&A
JV / Contract Manufacturing
Greenfield FDI
High Low
Low
High