The greenfield FDI is a form of direct investment where a parent company starts a new business in a foreign country by setting up new operational facilities. In addition to building new facilities, most parent companies also create new long-term jobs in the foreign country by hiring new employees. In order to decide which country is better for ‘greenfield’ foreign direct investment via sole ownership, the advantages and disadvantages of the countries should be considered.
For example, China is a developing country, and during the past 30 years, China’s rapid economic development shows that China has a strong power in developing economic. In recent decades, China ...view middle of the document...
Considering different legal context in China and America, Australian oriented firm may find more business flexibility in China but business efficiency in America and achieve a reduction of operating in China but high business ethics in America.For the absence of well-designed legal system and poor implementation, Australian investors may enjoy a low operating cost, and in the meantime, the operation cost in America would be quite high. Employers running business in America must afford much more social responsibilities than a Chinese firm needs for having a more comprehensive legal system which has weaved a protection network for all citizens as well as surrounding environment. Compared with law systems in US, one most evident character of Chinese legal system is reflected by the relative low requirements of law, especially in environment protection field or “Greenfield”.The sudden change of policies also lead to economic loses for foreign investors.
USA and China are both in relative stable situations these days, though the political system of China is neither monolithic nor rigidly hierarchical and with widespread of corruption (Lawrence&Martin 2012).
Ghemawat (2001, p. 137) claims that the social customs or specific standard of behaviour will automatically influence the preference and choice of local residence. As a result, the cultural differences between host and home countries become the main risk of FDI. The consequence of the social and cultural risk could be localized strike and demonstration, and also could cause the large scale riot or political turmoil. Hofstede (1980, pp. 27) outlines four characters of cultural evaluating system: power distance, collectivism or individualism, masculinity or femininity, and uncertainty avoidance. In contrast with America, the scores of China are twice as those of USA in terms of power distance which indicates that China is centralized while USA is relatively decentralized.
The advantages and disadvantages of both countries.
To decide which country is better for ‘greenfield’ foreign direct investment via sole ownership, we should consider the advantages and disadvantages of both countries.When managers make decision for FDI, they should think of the profit they can get from investing in the country and therefore they should look for the advantages of their investment. This report is going to analyse the advantages of both countries first.
The advantages of China.
China is a developing country, and during the past 30 years, China’s rapid economic development shows that China has a strong power in developing economic. After mid-1990, FDI became highly significant for Chinese economy (Dullien 2004). And the data shows the foreigner investment contribute nearly 26 billion US dollar in 1993 (China State Statistics Bureau 1994). These data shows that China has nearly 20 years experience in FDI, in other words,...