Increasing Agricultural Productivity:
Encouraging Foreign Direct Investments in the COMCEC Region
20
unexpected outcomes. Nevertheless, this option allows for a high degree of control and
ownership and secures an immediate access to the local market.
Table 7: Advantages and Disadvantages of Greenfield FDI as FDI Mode
Mode (including definition) Advantages Disadvantages
Greenfield FDI:
To establish from scratch an
operation entirely, in a foreign
country
• Full ownership and control
• Strong signal to customers
and other stakeholders
• Incentive potential
• Circumvent duties and
customers
• Significant investment
costs
• Requires time,
resources and
knowledge about local
market
• Management control
foreign operations
Source: ICA, 2012
If there are significant location advantages in accessing less expensive input factors, such as
labour, raw materials supply, energy, etc. with a high level of proprietary knowledge in
production processes, greenfield FDI may be the preferred mode of entry. There are also
regulatory constraints that paradoxically stimulate FDI, as shown in table 7. Asian textile
companies invested in Africa to circumvent quotas whereas Daimler invested in Russia to avoid
high import duties to serve the Russian market.
2.2 Four Key Drivers of FDI
Given the risks and difficulties in FDI strategies, there are four main drivers why firms
undertake FDI? Based on Behrman24 (1972), Dunning argued that FDI is motivated by four
drivers, either separately or in combination25. The categorisation set out below is generally
accepted as the most comprehensive framework capturing all the motives to undertake FDI:
 (Natural) resource seeking (supply oriented);
 Market seeking (import or export substituting);
 Efficiency seeking (rationalized investment);
 Strategic asset seeking (supply oriented).
In this context, the study refers to Multinational Enterprises (MNEs) because these types of
firms operate across borders and typically serve multiple foreign markets.
24 Behrman, Jere R., 1972.
25 The explanation of the four motives of international production draws heavily upon Dunning (1993, p. 56-62).