Entering China through Greenfield

Entering China through Greenfield

Entering China through Greenfield has got various risks as well as rewards. Entry into China has been created by global corporations by means of land leasing for industrial purposes since, presently, no foreigner can own land there. Some of the reasons why Tesla entered China through Greenfield is that China also provides primary drivers for new manufacturing investments, and the properties leased usually are at fair prices. China also ensures that these lands are within the development zones and are equipped with infrastructures such as electricity, water, and roads.

The reason why Tesla transferred its exports to China through Greenfield is that China has favorable policies concerning foreign investments. These policies include relaxed restrictions related to foreign ownership, increasing international participation by opening capital markets. China has also adopted transparent and standard merger notification procedures and increased transparency; it matters concerning its regulations.

Several largely growing international plants were likely to be crucial in the future of Tesla, and china is the world’s fastest global market tesla wanted to gain access to these significant global markets. China was likely to generate lots of millions from potential new customers obtained. A successful implementation in china would mean that the company would be able to meet its delivery targets as it continues to expand.

Advantages of Greenfield mode

Greenfield gives an advantage over investing in existing local companies because the company can determine the type of products and services it will be offering. Also, they are able to set their production rates and therefore, can overall determine their pace of growth and expansion.

Greenfield gives a simpler and effective way to adapt to the foreign market through its products and pricing mechanisms to fit the local conditions. The company is, therefore, able to gain control and assure its customers of excellent quality. Greenfield enables a company to have complete ownership and thus can extend a variety of offers to consumers and potential customers. These offers are like offering discounts and warranties according to the market circumstances.

Another benefit greenfield offers the opportunity to facilitate their marketing and advertising means in the local market and are also able to form partnerships with the local businesses. These partnerships are beneficial as they increase the penetration of foreign investors into the market. A company is also able to avoid charges incurred when lenders and other investors are used to getting into international markets. There are also chances of companies through Greenfield benefiting from government incentives.

Disadvantages

Greenfield as a mode of foreign investments is also considered risky since some countries have banned such methods. Countries that allow greenfield investment may have very high chances of entry barriers like content requirements, for instance, a need for foreign firms to use local components and services to do business. Projects are done through this mode often incur very high fixed costs since most times, and facilities are built from scratch. These businesses are also vulnerable to political risks since it is not an easy task depriving someone of the power of a production facility compared to selling a portfolio in local businesses.

Tesla experienced very high results and beating the expectations of the analysts, achieving a 105 million dollar sale in 2019, which had a subsequent significant increase in selling within the year. Using market capitalization, Tesla also managed to become the second-largest automaker in China in the year 2019 and had more enormous projections for 2020. Besides these achievements, Tesla also reported a drop in its vehicle sales in the year 2014 due to some of the policies set by the China government to extend purchase subsidies, introducing charging of infrastructure and tax breaks to its consumers. Tesla also faced adverse competition from local and foreign car manufacturers with lots of experience in the China market.