Final answer:
Green fielding is the creation of new operations in a undeveloped area and can be cost-effective under certain conditions. Companies consider various factors including infrastructure, labor costs, supply chain reliability, and market proximity when establishing a new factory.
Step-by-step explanation:
Green fielding refers to the process where a company builds new operations in a previously undeveloped or untouched area. Considering factors such as the building of infrastructure, the training of workers, shipping of goods, and paying employee wages, companies may find green fielding cost-effective in scenarios where the marginal cost of expanding services is minimal. Indeed, firms factor in economies of scale and seek places where they can maximize production at the lowest cost. This often leads them to establish subsidiaries in developing nations with already existing infrastructure and lower costs, potentially offering higher returns on investment than in developed countries with saturated markets and higher operation costs.
However, when companies look at where to locate a new factory, they take into account a variety of considerations beyond just the initial investment or operational costs. Factors such as the availability of reliable suppliers, proximity to customers, quality of transportation and communication networks, tax environment, and the integrity of local governance play significant roles. The cost of environmental regulations, while a factor, is usually a small percentage (1 to 2%) of the overall cost.