Analysis: Meet the Parents: Dependencies after foreign acquisitions and the role of home-biased trade

Trade and foreign investment are closely interconnected and shape companies' trading patterns and dependencies. Foreign ownership directs trade towards the owners' home country (home-biased trade), a factor that should be taken into account in discussions on economic security and the screening of foreign direct investments.

The report introduces the concept of home-biased trade. What does it mean, Ebba Lundqvist?

The concept of home-biased trade highlights an aspect of trade dependencies that is often overlooked: how foreign ownership affects firms’ trading patterns. Trade dependencies are usually analysed by looking at which countries trade with each other and how concentrated that trade is. By looking instead at who owns the firms, we can see whether foreign-owned firms become more dependent on their owner’s home country through increased imports or exports.

Your findings show that firms often have strong trade links with their future owner’s home market even before they are acquired. Why is this interesting?

Our findings suggest that foreign acquisitions are rarely random. Firms that are acquired often already have established trade links with the investor’s home country. The foreign investor may already know the Swedish firm or see value in acquiring a firm that is already integrated into its market or supply chain.

This also suggests that trade- and ownership-related dependencies may begin to develop before an acquisition takes place. That is important to consider when discussing economic security and foreign investment screening.

The report shows that geographical distance matters less when companies trade with their owner’s home country. Why do you think that is?

Distance has traditionally been seen as a barrier to trade: the farther away a country is, the less firms tend to trade with it. Our findings suggest, however, that this relationship becomes weaker when firms trade with their owner’s home country.

One possible explanation is that common ownership creates incentives to trade within the multinational group, for example, through shared suppliers, internal services or intra-group value chains. In terms of trade, ownership structure matters more than the geographic location of the country.

What is the main message you hope readers take away from the report?

We hope the report brings a new perspective to discussions about economic security and strategic dependencies. Trade and foreign acquisition are often analysed separately, but our findings show that they are closely linked. By understanding how foreign ownership influences firms’ trading patterns, we gain a more complete picture of how dependencies emerge and evolve over time. We hope the concept of home-biased trade will inspire future research and lead to a more informed discussion about economic security and the screening of foreign direct investments.