Greenfield vs. Acquisition in FDI: Evidence from Romania

This paper studies the comparison between greenfields and acquisitions as foreign direct investment (FDI) alternatives used by transnational corporations (TNCs). First, the determinants leading to the choice of companies between the two modes of entry into a foreign market are laid out. Then, we highlight the specific features of each alternative, contrasting their advantages and disadvantages. The analysis continues with the implications of greenfields and acquisitions on host countries, with a special focus on the situation of transition countries, where most of the acquisitions occurred within the privatization process. The comparison between the two types of FDI is then applied to the particular case of Romania. By means of statistical data, we show the recent distribution of FDI flows on acquisitions and greenfield projects, as well as their evolution over the last few years. Subsequently, we use the Top 100 largest companies in Romania ranked by turnover, to determine with the help of a multiple correspondence analysis the relations of association between the two types of FDI and specific characteristics of the foreign affiliates in the panel, such as: turnover, profit margin, industry, home country of the TNC and location in Romania. Based on the obtained results, we are able to draw some conclusions concerning the main features of greenfields vs. acquisitions in FDI flows to Romania.