Greenfield Foreign Direct Investment Versus Cross-Border Mergers and Acquisitions

Firms can generally access foreign markets through exporting or local production. If a firm considers production in a host country, it must decide whether to acquire an existing company or to create a completely new establishment. The latter issue has been less frequently addressed in the literature, especially in the case of firms from emerging markets. Firms from less advanced economies possess distinctive features; therefore, the determinants of purchasing a foreign company or creating a new plant may also differ from the ones observed for firms from advanced economies. The main aim of this paper is to define characteristics of firms that choose between the two modes of serving foreign markets. The paper also investigates the characteristics of host markets (market size, market structure, and competition intensity). The study should also shed some light on the question of why, during recent years, the number of cross-border mergers and acquisitions exceeded the number of greenfield projects.