GIDEON TUTU-KWARTENG

11010314

ASSIGNMENT 1
FINC 602
INTERNATIONAL FINANCIAL MANAGEMENT
International business involves the exchange of goods, services, technology, capital, and/or

knowledge across national borders on a global or transnational level. Determining whether to

pursue joint ventures, acquisitions, or greenfield investments depends on factors like market

conditions, available resources, risk tolerance, strategic goals, and the desired level of

operational control.

A joint venture is a collaborative business agreement in which two or more parties combine their

resources to achieve a specific goal. In a joint venture, each participant shares responsibility for

the profits, losses, and expenses. Many companies expand into international markets by forming

joint ventures with firms already established in those markets. This approach enables the

involved companies to leverage their respective strengths and expertise for a particular project.

Furthermore, it allows businesses to mitigate the risks and costs associated with entering foreign

markets. While being mutually advantageous, joint ventures also afford participants a level of

autonomy. However, successful execution necessitates careful negotiation, well-defined

agreements, and effective cooperation to navigate cultural disparities and ensure the venture's

prosperity. One notable example of a joint venture is the partnership between General Mills and

Nestle SA, which facilitates the overseas distribution of General Mills' cereals through Nestle's

established sales network.

Acquisitions are strategic business transactions that allow companies to expand their presence in

foreign markets by purchasing other companies. According to Madura (2021), a firm acquisition

can be either full or partial. A full acquisition provides the acquiring company with complete

control over the acquired foreign business, enabling it to quickly gain a significant share of the

foreign market and distribution networks. On the other hand, a partial acquisition grants the

acquiring company some control over specific operations of the target company but may also
pose financial risks due to the substantial investment required. Additionally, it presents

challenges related to integration, cultural differences, and stakeholder management. Given the

high-risk, high-reward nature of this strategy, thorough due diligence and effective post-

acquisition management are essential for achieving international success. An illustrative example

of a successful acquisition is Alphabet, the parent company of Google, which has expanded its

global footprint and enhanced its technology through major acquisitions in countries such as

Australia, Brazil, China, Canada, and Spain.

A Greenfield investment involves a foreign direct investment where a parent company

establishes a subsidiary in a different country and develops its operations from the ground up. In

addition to constructing new production facilities, these projects may also include building new

distribution hubs, offices, and living quarters. This approach provides the highest level of control

for the sponsoring company. Greenfield investments often attract tax breaks, subsidies, and other

incentives, particularly in developing countries. However, similar to any startup, it involves

higher risks and costs associated with constructing new factories or manufacturing plants.

Extensive time and financial resources are required for preliminary research to assess feasibility

and cost-effectiveness. For instance, in 2006, Hyundai Motor Company received approval to

invest around one billion euros in a major greenfield investment in Nošovice, Czech Republic.

The automaker established a new manufacturing plant that employed up to 3,000 individuals in

its first year of operation. The Czech government provided tax relief and subsidies to encourage

greenfield investment, aiming to bolster the country's economy and reduce the unemployment

rate.

Regarding nature, acquisitions involve the purchase of an existing business entity in the target

market, along with its assets, liabilities, and operations. On the other hand, greenfield
investments entail establishing a new business operation or facility from the ground up in the

target market. This involves constructing new infrastructure, hiring staff, and developing

distribution channels. Acquisitions provide a swift entry into the target market as the acquiring

company immediately gains access to existing infrastructure, customer base, distribution

networks, and brand recognition. In contrast, greenfield investments typically take longer to

establish compared to acquisitions, as the company needs to navigate regulatory approvals,

secure permits, build infrastructure, and develop local relationships. Acquisitions offer

immediate control over the acquired entity, while greenfield investments provide full control and

flexibility in designing and implementing the new business. In terms of cost and risk,

acquisitions often involve higher upfront costs due to the purchase price and potential

restructuring expenses, while greenfield investments may have lower initial costs but entail

higher long-term investment and operational risks. Acquisitions can create synergies by

combining complementary resources, whereas greenfield investments require building brand

awareness from scratch.

Joint ventures involve the creation of a new business entity with one or more partners, typically

to pursue a specific project, market opportunity, or strategic objective. In contrast, acquisitions

involve the purchase of an existing business entity, including its assets, liabilities, and

operations, either partially or entirely. In terms of control, joint ventures entail shared decision-

making among the partners, allowing for the pooling of resources, expertise, and networks, while

acquisitions typically result in full control over the acquired company's operations, management,

and strategic direction. Joint ventures distribute the risks and responsibilities among the partners,

potentially reducing individual risk exposure compared to sole ownership. However, differences

in goals, management styles, and cultural backgrounds can lead to conflicts and challenges. On
the other hand, acquisitions carry risks such as overpayment for the target company, integration

challenges, cultural differences, and potential resistance from employees or stakeholders.

Establishing a joint venture may take longer than an acquisition since it requires negotiation,

agreement on terms, and possibly regulatory approvals, while acquisitions offer a relatively

quick entry into the target market, as the acquiring company immediately assumes control of the

acquired entity’s resources, customer base, and market presence. Joint ventures offer flexibility

in structuring partnerships and sharing risks and rewards, allowing companies to access new

markets or capabilities without bearing the full burden of investment or operational

responsibilities. On the other hand, successful acquisitions require effective integration strategies

to seamlessly merge operations, cultures, and systems.

Greenfield investments involve the establishment of a new business operation or facility from the

ground up in the target market. This encompasses tasks such as constructing new infrastructure,

hiring staff, and developing distribution channels. On the other hand, joint ventures entail

forming a partnership with a local company in the target market to create a new business entity

or pursue a specific project. In the case of greenfield investments, the investors have complete

control over the design, implementation, and management of the new operation, offering greater

flexibility in adapting the business to local market conditions and strategic objectives. On the

contrary, joint ventures involve shared control and decision-making between the partnering

companies, enabling the pooling of resources, expertise, and market knowledge. While

greenfield investments may have lower initial acquisition costs compared to acquisitions, they

often come with higher long-term investment and operational risks, including the risk of market

entry failure, regulatory hurdles, construction delays, and the need to establish brand awareness
from scratch. Joint ventures allow for the sharing of risks and resources between the partners,

thus reducing the financial and operational burden on each company.

While each of the three approaches to internationalization differs in certain aspects, they are

equally alike in that they all necessitate meticulous strategic planning, market analysis, and

thorough due diligence to evaluate the appropriateness of the target market, regulatory

environment, competitive landscape, and potential risks and rewards. Buckley and Casson (1976)

underscore the significance of strategic planning and market analysis in their foreign direct

investment theory, which is applicable to both greenfield investments and joint ventures.

Furthermore, these approaches are also akin in their requirement for substantial financial and

human resources, as well as a dedication to long-term success in the target market.

1. Hitt, M. A., Ireland, R. D., & Hoskisson, R. E. (2016). Strategic Management: Concepts and

Cases: Competitiveness and Globalization. Cengage Learning.

2. Hill, C. W. L., Hult, G. T. M., & Wickramasekera, R. (2016). Global Business Today.

McGraw-Hill Education.

3. International Business: The Challenges of Globalization" by John J. Wild and Kenneth L.

Wild

4. Madura, J. (2020). International Financial Management. Cengage Learning

5. Peng, M. W. (2016). Global Business. Cengage Learning.

6. Rugman, A. M., & Collinson, S. (2012). International Business. Pearson Education.

7. https://corporatefinanceinstitute.com/resources/management/greenfield-investment/

8. https://www.forbes.com/sites/forbesbusinesscouncil/2023/10/19/international-market-entry-

strategies-for-businesses/?sh=3940fb604f74

9. https://www.investopedia.com/terms/j/jointventure.asp