Question

What are two reasons businesses prefer acquisition as a means of FDI over a greenfield investment? (Check all that apply.)

a) Lower initial costs
b) Faster market entry
c) Greater control over operations
d) More flexibility in adapting to local conditions

Answer 1

Businesses may prefer acquisition for FDI because it can provide faster market entry and lower initial costs compared to greenfield investments, due to existing infrastructure and established customer bases.

Step-by-step explanation:

Businesses may prefer acquisition as a means of foreign direct investment (FDI) over a greenfield investment primarily for two reasons:

• Faster market entry - Acquisitions allow businesses to bypass many of the time-consuming challenges associated with establishing a new presence in a foreign market, such as gaining regulatory approvals, constructing facilities, and hiring new employees.
• Lower initial costs - In contrast to greenfield investments that require significant capital for new site development, acquisitions might offer the benefit of an existing infrastructure and the presence of an established customer base, thereby reducing upfront investment.

While businesses may also seek greater control over operations and the flexibility to adapt to local conditions, these are not necessarily more prevalent in acquisitions compared to greenfield investments.