Growing the Firm "What drives Economic Growth"

I have read the article "What drives economic growth". It is written by Miao Wang and M.C. Sunny Wong. This article exams economic growth realized from foreign direct investment through mergers & acquisitions versus Greenfield investment. Wang is an assistant professor at Marquette University.  Wong is an assistant professor at the University of San Francisco.

The main question is what option is better for economic growth? Do mergers and acquisition work out better for the company and host country, or do Greenfield investments work best?

Wang and Wong state in their article that most host countries would benefit more from Greenfield investment instead of mergers or acquisitions. Greenfield investment creates additional jobs for the host country. Greenfield investment can also affect the competition of business in the host country. The reason for this opinion is that mergers and acquisitions simply take over a business that is already set up and running in a host country. Wang posits the theory that the acquisition of a company would not be as good as Greenfield investment, and that it may even be harmful for the host country. The harm to the host country may be in lost GDP. It could be lost production through the closure of existing plants that are currently operating. It could also bring about the possibility that some of the host countries workers will be laid off. Wang states that mergers and acquisitions do not bring up the skill levels of the host countries workers. Wang also states that there is no evidence that has been gathered to support the theory.

                This does not mean that Mergers and acquisitions cannot be good for a host country. Wang states that certain criteria must be met to support the theory that mergers and acquisitions actually benefit a host country. Human capitol or the investment in knowledge of the host countries people must meet a certain level to be counted as beneficial to the host country. If this does not happen then mergers and acquisitions are simply shifting ownership of a business from one country to another. This of course would send money out of the country to the nation that invested in the host country. Mergers and acquisitions are expected to promote productivity in some fashion making them beneficial to the company.

                Wang and Wong are studying some data gathered from The United Nations Conference on Trade and Development. They sampled some 84 countries in the examination of the effects. They used some rather complicated formulas to arrive at their conclusions.  They have figures measuring GDP or Gross Domestic Product of the host countries and other figures  to support their findings.

                Wang and Wong conclude that countries would prefer Greenfield ventures over Mergers and Acquisitions. Many countries  have created laws for the purpose of promoting Greenfield ventures. Yet mergers and acquisitions can benefit a host country if significant human capitol or knowledge is brought to the people of the host country. This means there is no set idea of how to conduct business in a foreign country that will benefit both countries. Benefits can be accomplished through mergers and acquisitions and through Greenfield investment.

Works Cited

Nanda, Nitya. "Growth Effects of FDI: Is Greenfield Greener?" Perspectives on Global Development & Technology 8 (2009): n. pag. Print.

Neto, Paul, Antonio Brandoa, and Antonio Cerqueira. "The Macroeconomic Determinates of Cross Border Mergers and Acquisitions." IUP Journal of Business Strategy 7 (2010): n. pag. Print.

Wang, Miao, and M. C. Sunny Wong. "What Drives Economic Growth? The Case of Cross-Border M&A and Greenfield FDI Activities." Kyklos 62 (2009): n. pag. Print.