Greenfield: A solid expansion strategy ... but not for everyone

Greenfield expansion through the opening of direct subsidiary companies abroad remains a highly attractive way of growing into new markets, but it is by no means a default option for all companies. In this thread of posts, we will explore the principle factors that companies should consider when evaluating greenfield strategies as well as case studies and current events that highlight these factors.

While every potentional expansion project presents unique considerations, in our experience there are at least three major factors that need to be present for greenfield strategies to prosper. These factors are: multinational growth ambitions, availability and access to growth capital, and the importance of building a unique company culture.

Multinational Growth Ambitions

Greenfield strategies tend to make sense for companies that have well-founded regional or global expansion plans for their products and services. The more a company can envision selling its products and services in multiple markets and regions, the more it can justify the costs of starting up and maintaining international operations as part of its long-term planning strategy. Over time, a company can become adept at greenfield expansions and spread the relatively high costs associated with this strategy across multiple projects and locations. Conversely, companies that may only see themselves in one or two additional markets over time may not obtain sufficient benefits from investing in do-it-yourself expansions.

Access to Growth Capital

Compared to other modes of market entry, greenfield strategies require more time and, consequently, investment. Firms that have access to healthy levels of growth capital and financing are therefore better suited to engage in the time-consuming tasks of starting a wholly owned subsidiary, recruiting and training staff, and generating a market presence with limited help from incumbent players. Companies that may not have access to such financing would be well-advised to consider expanding through partnership that, if done correctly, may offer efficient and less costly access to new markets.

Unique Company Culture Considerations

While a healthy level of shared values and teamwork is desirable in all companies, some firms place a larger premium on building a unique and sustainable company culture as part of their strategic planning. Greenfield strategies tend to match up better with firms that want to maintain a consistent and unique company culture everywhere they do business because new offices can be built in the "company way" without the need to integrate or re-train acquisition or joint venture partners. This is not to say, however, that a company's culture cannot be obtained through other modes of entry. Staffing new and international operationes with very well trained outsourced staff that operates through a local vendor, for example, may present a viable alternative in some cases. But, as a general matter, growing organically through greenfield strategies tends to foster greater understanding and allegiance to a company's way of doing things.

Many other factors, including the competitiveness of the target market, the presence of viable business partners, and regulatory and legal issues affecting foreign ownership and direct investment, also play a role in the attractiveness of greenfield strategies. In future posts, we will feature examples of specific companies that have adopted greenfield strategies as a way to obtain insights into their choices and to compare and contrast other options that may have been available to them.

As mentioned in other posts, choosing the optimal mode of market entry for any company requires significant pre-study and deployment of a focused and experience expansion team.

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Andres Snaider is a founding partner of Nextant, a consulting firm specializing in assisting companies expand their businesses in international markets, with a strong focus on Latin America. With a degree in law and experience working as an international attorney and businessman, Mr. Snaider has advised clients on a range of commercial matters and investments across the Americas. He is a graduate of the Harvard Law School and currently lives and works in Boulder, Colorado.

Email Andres at : asnaider@nextant.com

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Nextant has extensive experience in assisting leading clients through its Market Expansion and Business Optimization services. For more information on how Nextant can assist your company in socializing a market entry and initiating sales, please visit our website at http://www.nextant.com