Selecting Greenfield versus acquisition. A conceptual approach

Abstract

This study seeks to offer a new approach in the analysis of variables that constrain the selection between setting up a new establishment from scratch (greenfield), and the purchase of a local firm (acquisition). A small number of studies have investigated what may influence this decision, yet there is only agreement on the impact of a few variables. By making an effort to provide managers and scholars with new criteria for implementing the wholly-owned entry mode decision, we present a model that integrates the well-established list of variables identified as having an impact on this choice, with three new predictor variables which have not been explored before in this context, to the best of our knowledge. They are: i) industry scale economies; ii) target market life cycle; and iii) firm knowledge. Firm performance implications are also considered. Although this work is not empirically tested, we derive a set of research propositions, provide insight on how to test the proposed conceptual model, and offer directions for further research. In sum, the conceptual analysis presented in this study yields insights into the differences between acquisition and greenfield, as well as firm performance implications. Extensions to this study may wish to explore which contingencies (managerial, environmental, and so forth) stimulate multinational companies to strike a balance between acquisition and greenfield over time. Another promising avenue for further research is the practical examination of the effects we predict in this study.