What are Greenfield and Brownfield Investments?

Corporations invest in other countries through Foreign Direct Investment(FDI). But, when a company acquires, lease, purchases plants, office spaces and other assets it is called Greenfield or Brownfield investments. What exactly sets apart Greenfield from Brownfield? Let’s delve into the differences between the two investments for clarifications.

Greenfield investments refer to investments and building of new assets by large corporations on the fields that are green, green typically means new. Large companies build buildings and other assets from scratch where there were no facilities available. Companies opt for this method because it gives them flexibility for design in consonance with their current project. New facilities are less costly to “maintain” than used ones. New facilities prove to be more frugal when advertising for employee requirements. This method also has potential risks, it will make the budget skyrocket for research and other studies. The prevalent labor laws and municipal laws act as a limiting factor and the company may need to appoint a separate compliance manager for the same.

Brownfield investments refer to investing in a facility which may have previously used the same purposes by another company. The cost of setting up a functional area is low for brownfield investments and it can help the company save a dime in startup costs. Adhering to municipal laws and other laws are easy because the previous company who held the space have followed the same. Since the design element is compromised asset purchase is to be made in relevance to the current infrastructure. A leased property puts up further impediments for development and can affect the companies purchasing decisions.

Companies choose investments based on their needs, for manufacturing and industrial activities it is advisable to opt for Greenfield projects whereas for office and commercial spaces Brownfield project is the best option.