The second episode of our educational series on foreign direct investment delves into the world of greenfield investments, particularly focusing on semiconductor companies. Greenfield investments involve building new facilities or expanding existing ones in foreign countries, rather than acquiring existing businesses. These types of investments are often seen as a way for companies to establish a presence in new markets and gain a competitive edge.
Building on its experience with the current FDI Screening Regulation over the past three years, the European Commission is proposing that all Member States adopt stricter controls on foreign investments, particularly in critical sectors such as technology and infrastructure. This move aims to protect European industries from potential risks associated with foreign ownership.
Three factors—supply chain security, sustainability, and subsidies—feature prominently as semiconductor companies expand into new countries through greenfield investments. Ensuring a secure and reliable supply chain, meeting sustainability goals, and taking advantage of government incentives are key considerations for companies looking to establish manufacturing facilities abroad.
Increasing fragmentation can be observed in declining foreign direct investment flows globally. However, some countries have seen an influx of greenfield investments, particularly in the semiconductor industry. These investments play a crucial role in driving innovation, creating jobs, and fostering economic growth in the host countries.
Global foreign direct investment (FDI) flows in 2023, estimated at $1.37 trillion, showed a marginal increase (+3%) over 2022. Greenfield investments continue to be a significant contributor to FDI flows, with semiconductor-related projects leading the way in terms of investment value and job creation.
Looking at the trends in greenfield investment in Japan on an announced basis over the long term, it is evident that semiconductor-related projects have been driving significant investment in the country. Japanese government policies and incentives have played a key role in attracting semiconductor companies to establish manufacturing facilities in the country.
For Alif, a multinational semiconductor company, the greenfield approach has catered to the broader ambitions of the company in Central Asia, allowing for its gradual expansion into new markets. By investing in greenfield projects, Alif has been able to capitalize on the growing demand for semiconductor products in the region.
The UK defied a decline in foreign direct investment across Europe last year, particularly in greenfield projects. This was seen as a vote of confidence for Prime Minister Rishi's economic policies, which have been successful in attracting foreign investment in key industries such as technology and manufacturing.
