Title:
Foreign Direct Investments as Alliances. An Application of Network Analysis to the European Integration Project in the 2000-2010 Decade

Authors:
Massimiliano Porto, Agata Wierzbowska, Japan

Abstract:

Foreign direct investment (FDI) is a cross-border investment through which an entity in one country exercises lasting control over a firm in another. Each investment forms a dyad, but once an FDI is established, the ultimate controlling parent faces choices for further expansion: it can invest directly or through one of its affiliates. Consequently, the realization of FDIs often takes the form of networks of subsidiaries and affiliates linked to an ultimate controlling parent. We consider this network of FDIs as the outcome of alliances.  In the first part of the paper, we provide a definition of alliance to encompass any FDI, regardless of the mode of entry of a firm in a foreign market and its motive for investment. In the second part of the paper, we apply social networks to investigate the change in the network of FDIs in Europe in the 2000-2010 decade. We identify which European countries occupy key positions in the network and explore how the European integration process during that period began to shape it. Furthermore, we examine how firm location – whether in an EU15 member state or a country from the Eastern Enlargement – affected FDI formation by modelling homophily using an exponential random graph model. Due to data availability for constructing the network of affiliated firms, our analysis focuses on Japanese investments in Europe.

DOI: https://doi.org/10.51505/IJEBMR.2025.91104