A Look at The Inception and Growth of Companies in a Foreign Country

Green field investment is where a company opens its operations and facilities in a foreign country from scratch and grows from the ground upwards. The parents company may have to establish new establishments, facilities and distribution channels. This venture is often very expensive because it calls for massive investment on infrastructure and recruiting of new staff. Green field investment is opposed to brown field investment where leasing of infrastructure ad land allows companies using brown field investment to save on infrastructure costs. Green field therefore results to higher costs and risks due to the development of new facilities. For that reason, the companies using green field investment hope that their services will be accepted anonymously in order to cover their set up costs hastily. Carrefour’s green field failure in Malaysia illuminates the risk that green field investment plans hold.

Developing countries such as Malaysia offer big companies and corporations a chance of investment in their country through subsidies and incentives such as tax breaks. By so doing many companies decide to invest in the country when there is a feasible opportunity. Carrefour was one of the companies that seized the opportunity to invest in Malaysia due to the country’s continued growth. Carrefour entered Malaysia using the green field investment strategy hoping that it would compete with some of the big supermarket chains in Malaysia such as Tesco and AEON (Lighthouse, 2012).

Challenges of Green Field Investments that affected Carrefour

Green Field Investment entails a long term commitment with the host country owing to the nature of the investment. A company needs to be given tax breaks and incentives for an agreed period of years in order to recover their investment cost. During this period, the company is also expected to spread its roots in the country in order to have a stronger presence and acceptance. However, in the event of changes on the agreement made, taxation could greatly affect the company (Ryan, 2012). At extreme cases, companies pull out their project which is also a case of Carrefour. High taxation coupled with high competition played a major role towards the failure of Carrefour in Malaysia.

The way that people accept a new brand also matter and directly determines the success of the brand in the region. Owing to the heavy presence of Tesco and AEON in Malaysia, Carrefour did not get much anonymity from the public since they already had other successful multinational chains in their country. Outsourcing labour was a also challenging since salaries and remunerations are determined by the host country. For that reason, Carrefour had to hire guided by Malaysian laws hence affecting the feasibility of their budget considering that the chain was trying to cover construction overruns (Yusof., 2016).

It is difficult to market a Supermarket due to various factors of preference and demographics, however, experts state that if Carrefour had tried to advertise their brand, they would have obtained a considerate size of the market that would have helped them remain in the Malaysian market. However, the dormancy and inability of Carrefour to expose their brand to consumers only resulted to lower weakening of their brand due to vigorous competition from the dominant Tesco and AEON (Affiliation, 2015). Their passive approach to marketing played a key role to their failure in Malaysia. Tesco was also inactive in capturing consumers of different categories. The supermarket chain had facilities in locations that were not competitive hence they did not have substantial customers to sustain their business in Malaysia. While Carrefour has been known to publish ads on other markets, they were quite inactive in advertising their presence in Malaysia (Capon & Vanhonacker, 2012). Despite their strength in other reasons, Carrefour was amidst other giants but their inactivity and reluctance to sell their brand effectively ultimately led to their withdrawal from the Malaysian market.