Abstract
Multinationals may enter a host market by different modes of foreign direct investment (FDI). Two are widely used: Cross-Border M&A and Greenfield Investment. In practice, M&A transaction has increased dramatically in China over the last several years. This paper examines the choice of FDI modes, and makes a comparison between the two modes from the external and internal impacts. Then get the conclusion that we should choose the right mode according to the different situation about the firms in the international market. The purpose of this paper is going to analyze the two entry modes specifically and helps us better understand the two modes.This article consists of four parts. Part1 is a short introduction to China today. Part II briefly introduces the current status of M&A and Greenfield Investment. Part III compares the two entry modes from their implementations, cost, external and internal sides. At the last part, we get the conclusion and make the suggestions to our investors.
Highlights
In China, there is a very famous proverb that says “Xi Bian Bu Liang, Dong Bian Liang”
After its accession to the WTO and further opening to the outside world, China has been one of the most important countries to receive an increasingly strong flow of foreign direct investment (FDI), with 40,772 million USD in 2000; 46,846 million USD in 2001; 52,700 million USD in 2002; and 53,505 million USD in 2003. (See Exhibit 1) After 2003, until 2007, China continuously maintained this strong momentum in assimilation of FDI inflows
In 2001, due to the bubble busted of the global stock market, the Cross-border M&A experienced the cold current and fall off 48.21%
Summary
In China, there is a very famous proverb that says “Xi Bian Bu Liang, Dong Bian Liang” This proverb describes a celestial phenomenon, but it can be used to vividly depict a true picture of the world economy. There are two common models: Greenfield Investment and Cross-border Mergers and Acquisitions. According to the World Report 2003-2005 of FDI, we get the fact that before 1980s; majority of multinational companies entered the host country by the way of Greenfield investment (See the Exhibit 2). After 1980s, firms increasingly enter foreign markets by acquiring a local producer (acquisition) instead of opening a new subsidiary (Greenfield investment). (See the Exhibit 3) With the world economic recovery in 2004, M&A resumed again, the accounting for the proportion of multinational investment rose to 58.73 percent The investment capital even accounted for less than 50%. (See the Exhibit 3) With the world economic recovery in 2004, M&A resumed again, the accounting for the proportion of multinational investment rose to 58.73 percent
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