Social Sequence Analysis: Ownership Networks, Political Ties, and Foreign Investment in Hungary

To model, from its inception, inter-enterprise network formation and its interaction with foreign investment across an entire epoch of rapid and profound economic transformation, we gathered data on the complete ownership histories of 1,696 of the largest Hungarian enterprises from 1987 to 2001. We develop a social sequence analysis to identify distinctive pathways whereby firms use network resources to buffer uncertainty, hide or restructure assets, or gain knowledge and legitimacy. During this period, networked property grew, stabilized, and involved a growing proportion of foreign capital. Cohesive networks of recombinant property were robust, and in fact integrated foreign investment. Although multinationals, through their subsidiaries, dissolved ties in joint venture arrangements, we find evidence that they also built durable networks. We then augment the ownership data with personnel data on the managers and directors of these firms in 2001. By merging that dataset with the list of all political officeholders in Hungary, we identify a company as having a political tie when one of its economic officeholders is a current or former political officeholder. Social sequence analysis of network topographies provides analytic leverage not only in in understanding how foreign direct investment is related to the temporal structuring of business networks but as to the ties of firms to political parties. Not as a general rule but through specific histories, firms can be cohesively tied to other firms, closely tied to political parties, and strongly linked to foreign capital. Our findings suggest that developing economies do not necessarily face a forced choice between networks of global reach and those of local embeddedness.