Entry Mode Choice in Emerging Markets: Greenfield, Acquisition, and Brownfield

Multinational firms expanding into emerging markets can choose between entry through a greenfield project and via an acquisition. This paper analyzes this strategic decision. Among the options for entry mode, brownfield is delineated as a special case of acquisition, in which the resources transferred by the investor dominate over those provided by the acquired firm.Our analytical framework draws upon both resource-based and transaction-cost theories. The resource requirements have to be matched with resources available to the investor through an acquired firm, or otherwise. Beyond this, the decision has to account for the costs of acquiring and integrating the resources. The model presented complements the literature with insights gained through our case research on foreign investment into Eastern Europe. On this basis, we discuss the hybrid form of brownfield entry. Two distinct situations lead to brownfield investment: external growth strategies that are inhibited by poor quality of local firms,and internal growth strategies that depend on specific local resources. Brownfield entry can also become a key strategy for firms that possess strong core competences which need to be complemented with specific resources controlled by local firms.