Making sense of foreign investment screening through sectoral analysis

Abstract

This commentary engages with Alami by making the case for both a broader view of how states have sought to mediate globalised investment flows and a narrower sectoral analysis of mergers and acquisitions to make sense of foreign investment screening vis-à-vis contemporary transformations of the global economy.

Foreign investment screening mechanisms (FISM) go to the heart of claims that states are reasserting sovereignty over open markets. Alami (2026) provides an important geographical intervention into International Relations/International Political Economy (IR/IPE) debates on defensive justifications of geoeconomics, economic statecraft, and weaponised interdependence (Armijo and Katada, 2015; Farrell and Newman, 2019; Weinhardt et al., 2022). By situating the rise of FISM within broader patterns of capital centralisation by way of mergers and acquisitions (M&A), corporate industrial restructuring and financialisation, Alami makes the case that, far from deglobalisation and an end to neoliberalism, in geographies where FISM is implemented, it is a means for national champions to ‘engage favourably with competitive dynamics of capital centralisation’.

The question I pose in relation is, just how relevant is FISM as a means for states to ‘lock in’ the competitive advantages of industrial champions? Alami identifies FISM with primarily advanced capitalist economies in Europe, North America, and Asia, regions where global corporate value capture is concentrated. However, this is also a subset of economies characterised by substantial variation and dynamic transformation. Why states that have been home to the biggest and most competitive firms have controlled or liberalised investment has differed over time. If the intention is to situate FISM within wider geographical processes, both a broader view and narrower analysis of how states have sought to mediate globalised investment flows can enrich the arguments presented. Cross-border M&A transactions, which FISM are designed to limit, are complex configurations of transnational ownership covering a broad expanse of transactions from takeovers to non-blocking minority stakes where the line between other forms of foreign investment like joint ventures, partnerships, licensing arrangements, and variable interest entities is blurred. Each ownership configuration implies different degrees of foreign control. More importantly, M&A strategies vary greatly across industries, and the significance of different industries vis-à-vis the hierarchical nature of corporate value capture matters in assessing the significance of FISM.

Glassman's (2024) recent intervention on critical geoeconomics against the reification of geoeconomics, geopolitics, and geopolitical economy as ahistorical logics of power recalls the need for fine-grained analysis of the specific institutions, processes, networks, and industries that characterise any given geohistoric reality. Making sense of FISM vis-à-vis contemporary transformations of the global economy calls for detailed sector-specific M&A analysis (Keenan and Wójcik, 2023).

In this spirit, I contextualise advanced capitalist states’ efforts to mediate investment flows through two vignettes of M&A in the global automotive industry, underscoring the limitations of FISM as a means to consolidate the market power of national champions and the need for a sector-specific view to understand macrogeographic developments within global capitalism.

Corporate raiders and state capitalist ‘white knights’

One of the primary justifications for FISM is to block acquisitions by geopolitically contentious foreign states, but the history of M&A in the automotive sector suggests the largest and most controversial deals have been characterised by aggressive commercial contestation. The encroaching influence of shareholder value, itself supported by states at the apex of automotive production in the 1990s, exacerbated the threat of takeovers by corporate raiders and predatory financial firms (Kumar, 2012).

In states like Germany, where automotive manufacturing is a core driver of growth, government intervention over M&As accelerated in the wake of the 2008 global financial crisis were made precisely to facilitate the kind of undesirable foreign investment that would be subject to the expanding scope of FISM as a geopolitical risk. State-owned investors were providers of patient capital to crisis-stricken legacy automakers at risk of hostile takeover by ‘friendly’ foreign and domestic investors, ensuring the survival of the biggest and most competitive national champions against the backdrop of growing pressures to satisfy short-termist shareholder demands, increasingly volatile corporate restructurings, and global financial crises. Haberly's (2014) insights into the M&As of three of the big four German automakers illustrate.

In the case of Porsche's failed hostile takeover bid of Volkswagen in 2007, the government of Lower Saxony and at the federal level intervened to effectively block the deal and pave the way for patient capital from the Gulf in the form of Qatari sovereign wealth. Porsche had taken on $10 billion in debt to acquire the 10 times larger Volkswagen and found itself under threat of takeover. State-owned capital from the Gulf provided the necessary liquidity to push through the merger, but on condition that the majority of investment be directed to Volkswagen, highly profitable at the time, and not the financially distressed Porsche (Haberly, 2014).

Similarly, the $33 billion DaimlerChrysler deal of 1998 was an industry milestone but one continually subject to the discipline of shareholder value. A number of legal disputes with investors followed the deal, including a class action lawsuit (Vlasic and Stertz, 2001). Large dividend payouts that significantly reduced liquidity going into the global financial crisis and growing dissatisfaction among their largely Anglo-American investor base raised the threat of hostile takeover. In 2009 the Abu Dhabi sovereign wealth fund, Aabar investments, provided patient capital of 1.95 billion euros to prop up the crisis-stricken automaker. A foreign state-owned investor, once castigated as undesirable in the 1970s, consolidated the position of Germany's then-largest automaker (Haberly, 2014).

M&A, state capacity, and the rise of East Asian automakers

FISM recalls a long lineage of geographic and political economy scholarship under the umbrella concept ‘state capacity’. Initial debates that centred bureaucratic autonomy in the successful upgrading of domestic industry increasingly recognised the importance of strategic relational state capacity: the ability of state institutions to leverage and mobilise globalised investment flows (Chen, 2018; Liu, 2024; Liu and Dixon, 2022; Meckling and Nahm, 2022; Yeung, 2016, 2017).

One expression of this has been the facilitation of M&A transactions and other forms of foreign investment, notably joint ventures and strategic partnerships, that played a key role in the late industrialising success of East Asian automakers. The Korean state gave direct and indirect financial support for acquisitions, partnerships, licensing agreements and joint ventures between General Motors and Daewoo, Hyundai and Mitsubishi (Jacobs, 2022). In China, legacy automakers like Volkswagen were provided generous financial incentives but that were combined with stringent local ownership rules (Thun, 2006). These arrangements laid the foundation for domestic industrial upgrading. Where historically the majority of profits have been captured by automakers from Western Europe and the United States, Chinese, Korean, and Japanese firms now dominate the global electric vehicle market, from breakthroughs in hybrid efficiency and shared autonomous driving to critical minerals and component manufacture (BloombergNEF, 2020).

This has led to a reversal in the geography of M&A. Previously, East Asian automakers sought M&A with legacy automakers in Asia-led Western tie-ups, including the Geely acquisition of Volvo and the SAIC acquisition of MG, deals that had they been concluded in 2024, would be within the scope of FISM. In recent years, there has been the emergence of Western-led Asia tie-ups in Europe and the United States, such as Ford's and Volkswagen's partnerships with CATL and Stellantis’ joint venture with Leapmotors (Northam, 2023; Ramsay, 2023). These deals have been accompanied by industrial policies to attract East Asian battery manufacturers through favourable tax regimes, off-balance sheet lending, and subsidies. In 2023 alone, over two billion euros was extended through such mechanisms within the European Union to battery firms from East Asia. ¹

The relevance of FISM is not only geographically variegated, as Alami hints at in the conclusion, but contingent on the sector-specific position of firms within the global hierarchy of value capture, a point that finds affinity with recent work theorising the relation between state capacity, firm strategy, and globalised production in the green transition (Allan and Nahm, 2024).

As this close reading of automotive M&A suggests, advanced capitalist states home to the world's biggest automakers find themselves in the position of having to liberalise investment from the very same sources, namely China, that they have sought to arrest control over through FISM, much like the circumstances faced by East Asian states decades ago. Globalised investment flows have and continue to shape how states consolidate the power of the world's biggest industrial firms. I return to the spirit of Alami's critique in closing.