Designing Hell or High Water Clauses for Foreign Investment Clearances
Hell or high water clauses for foreign investment clearances must bound divestiture obligations with strict asset schedules and reverse termination fees.
Supply Chain National Security
Meaning
Government policies and regulations designed to protect the integrity of essential production lines from foreign interference or disruption focus on the origins of critical components and software. Supply chain national security involves the screening of investments in sectors like telecommunications, energy, and defense. It aims to prevent the installation of backdoors or the use of hardware that could be remotely disabled by a hostile actor.
Review Authority
Dedicated committees have the power to investigate and block the acquisition of domestic technology firms by foreign buyers. A supply chain national security assessment looks at the track record of the investor and the sensitivity of the technology involved. This process can lead to a requirement that certain parts of the business be sold to a trusted local partner.
Industrial Impact
Companies must often redesign their procurement processes to comply with these strict standards. Maintaining supply chain national security requires a deep understanding of every tier of the manufacturing process, from raw materials to the final assembly. Firms that fail to meet these requirements may be barred from bidding on government contracts or operating in certain regulated markets.
The cost of compliance can be high but it is necessary for maintaining market access.
Risk Management
Protective measures include the use of vetted suppliers and the regular auditing of software code. Supply chain national security is a moving target as new technologies and geopolitical tensions emerge. It shifts the focus from the lowest cost to the highest level of trust and reliability in the production network.