Greenfield vs. Brownfield Investments: What’s the Difference?

Greenfield vs. Brownfield Investments: An Overview

Foreign direct investment (FDI) typically flows through two distinct channels: greenfield investments, where companies build new facilities from scratch, and brownfield investments, where they purchase or lease existing ones.

While both approaches help companies set up operations in new markets, they represent fundamentally different strategies with distinct advantages, risks, and implications for the investing company and host country.

The choice between a greenfield and brownfield investment can make or break a company’s international expansion. Tesla’s (TSLA) greenfield investment in its Shanghai Gigafactory, which went from groundbreaking to vehicle production in just 168 days, demonstrates the potential speed of new construction, especially when host countries are eager for the jobs and productive capacities these projects provide.

But it also could show the perils of not building off already open channels—Tesla has, at times, cut production at the plant given sluggish sales, among other issues.

Read on to find out more about greenfield and brownfield investments, the major differences between the two, and the most significant trends in these forms of FDI in recent years.

Understanding Foreign Direct Investment (FDI)

When a company invests significant resources in another country, it’s making what economists call FDI. This is when companies put down real roots in foreign soil—they’re not just offloading products and selling stuff made elsewhere. FDI involves building or buying facilities, hiring local workers, and becoming part of that country’s business landscape.

The U.S. Department of Commerce considers an investment “direct” when a foreign company owns or controls 10% or more of a U.S. business.

This ownership threshold matters because it typically indicates the investor has a meaningful voice in management and a long-term commitment to the business, distinguishing FDI from more temporary investments like buying stocks.

FDI flows both ways. While the TSMC project represents inward FDI (foreign companies investing in the U.S.), American companies also make outward FDI when they expand overseas.

For example, when Starbucks Corp. (SBUX) builds new coffee shops in China, or Tesla constructs massive factories in China, they’re making foreign direct investments in those countries.

Companies pursue FDI for various mutually reinforcing reasons:

• Access new markets and customers
• Reduce transportation or production costs
• Take advantage of local expertise or resources
• Bypass trade barriers
• Benefit from government incentives, like the CHIPS and Science Act of 2022, that partially enabled TSMC’s expansion

For host countries, FDI can bring significant benefits: new jobs, technology transfer, tax revenue, and economic growth.

However, it can also raise concerns about foreign control of strategic industries or resources, which is why many countries carefully review and regulate FDI. Below, you can see World Bank data on FDI flows into various countries across the globe, including the U.S.

How Greenfield and Brownfield Investments Work

When companies expand internationally, they face a crucial strategic decision: build something new or buy something already there. The choice between greenfield and brownfield investment shapes their immediate costs and their long-term success in a foreign market.

Greenfield investments like Taiwan Semiconductor Manufacturing Company’s (TSMC’s) $165 billion semiconductor project in Arizona involve building facilities from the ground up. The term “greenfield” refers to starting with an empty field—perhaps agricultural land that’s being converted to industrial use. In these investments, the parent company opens a subsidiary in another country.

These projects typically include constructing not just the main facility, but also supporting infrastructure like offices, warehouses, and sometimes housing for workers.

While greenfield investments offer complete control over facility design and operations, they require extensive planning, higher upfront costs, and longer timelines before becoming operational.

Brownfield investments are a different approach. When German chemical company BASF SE (BASFY) acquired Engelhard Corporation for $5 billion in 2006, it gained immediate access to facilities, an established workforce, and market presence in the U.S.

This shows how brownfield investments—whether through acquisition or leasing—allow companies to hit the ground running.

The distinction between these approaches has become a major international issue as governments actively court certain types of foreign investment. The CHIPS Act, for example, shows how national priorities can influence companies’ choices between building new or buying existing facilities.

Similarly, concerns about technology transfer and national security often affect whether governments approve brownfield investments, particularly in sensitive industries.

Greenfield Investments

Companies involved in greenfield investments are multinational corporations that begin a new venture from the ground up, especially in areas where there are no facilities that already exist.

There are several reasons a company may decide to build a new facility rather than buy or lease an existing one. The primary one is that a new facility offers design flexibility and efficiency to meet the project’s needs.

An existing facility forces the company to adjust to the present design. All capital equipment needs to be maintained. If the company wants to advertise its new operation or attract employees, new facilities also tend to be more favorable.

There are also drawbacks to constructing new facilities. Building from scratch can bring more risk as well as higher costs. For example, a company may have to invest more initially when it builds from scratch to fulfill feasibility studies. There may also be problems with local labor, local regulation, and other hurdles that are standard with major new construction projects.

Here are some of the key advantages and disadvantages of this approach to FDI:

Brownfield Investments

With brownfield investing, companies scout available facilities in the host country that are compatible with their business models and production needs.

If the national or municipal government requires licenses or approvals, the brownfield facility may already be up to code. In cases where the facility previously supported a similar production process, brownfield investments can be a great find for the right company.

Modern brownfield investments often involve the following:

• Acquisition of existing operations
• Modernization of acquired facilities
• Integration of existing workforce and systems
• Adapting to inherited business relationships
• Navigation of local regulatory frameworks

The clear advantage of a brownfield investment strategy is that the production facilities are already up and ready (or at least further along the way than greenfield projects), reducing the startup costs.

These investments do come with the risk of buyer’s remorse. Even if the premises had been previously used for a similar operation, a company rarely finds a facility with the type of capital equipment and technology to suit its purposes completely. If the property is leased, there may be limitations on what kinds of improvements can be made.

Here are other advantages and disadvantages of this approach:

Trends in Greenfield and Brownfield Foreign Direct Investments

Major shifts are happening in foreign direct investing, much but not all driven by geopolitical tensions, technological needs, and supply chain reorganization. Several key trends are reshaping how companies approach both greenfield and brownfield investments. Let’s review some of the most important:

Homeshoring

Supply chain resilience has become a primary driver of investment decisions. The COVID-19 pandemic and subsequent global disruptions have pushed companies to reconsider their “just-in-time” manufacturing models. This shift has sparked a wave of greenfield investments in critical industries.

This includes TSMC’s Arizona chip plants and Intel Corp.’s (INTC) $20 billion investment in new Ohio facilities.

The U.S. and its EU allies have said they’ve learned from the pandemic supply chain snarls that such important industries shouldn’t be at the mercy of shipping issues abroad. They’re bringing more of these capacities back to their home shores.

A major part of this is that national security concerns are increasingly influencing investment patterns. Governments are taking a more active role in directing and restricting foreign investments, particularly in sensitive sectors like technology, telecommunications, and critical minerals.

Nearshoring

The trend of nearshoring (moving operations closer to home markets) has shifted, where countries are looking to place their greenfield projects.

North American companies are increasingly establishing new facilities in Mexico and Central America to reduce dependency on long supply chains, especially in critical sectors like semiconductor manufacturing.

Shifts in Sectors Seeing Investments

The automotive sector is seeing substantial greenfield investments in electric vehicle manufacturing plants, particularly in North America and Europe. Simultaneously, brownfield investments are revamping traditional automotive manufacturing plants to accommodate EV production lines.

Government Subsidies for Manufacturing

The CHIPS Act in the U.S. and similar initiatives in Europe demonstrate how public policy is shaping far more major manufacturing projects than in the previous decades, which were marked far more by deregulatory moves than public-private partnerships.

Greenfield Projects: Eco-Friendly Manufacturing

Environmental considerations are transforming both investment types. While brownfield investments face greater scrutiny over contamination and cleanup costs, greenfield projects must navigate stricter environmental impact requirements.

Companies increasingly factor sustainability goals into their investment decisions, often preferring locations with access to renewable energy.

Greenfield projects are increasingly concentrated in sectors aligned with sustainability, such as renewable energy, electric vehicle manufacturing, and sustainable agriculture. Investments in solar, wind, and battery manufacturing facilities have surged, especially in regions aiming to transition toward cleaner energy.

The Shift to “China Plus One”

Emerging market dynamics are also shifting. While China remains a significant investment destination, many companies are pursuing a “China plus one” strategy, establishing additional facilities in countries like Vietnam, India, or Mexico.

The Bottom Line

The choice between greenfield and brownfield investment has significant implications for companies and host countries. While greenfield investments offer greater control and new, more technologically up-to-date facilities, brownfield investments provide faster market entry and lower initial costs.

Recent trends suggest that a hybrid approach is emerging, where companies combine strategies to balance risk, speed, and strategic control. As government policies and global challenges reshape investment patterns, companies must carefully evaluate their options against immediate business needs and long-term strategic goals.