20 Jan 2023
by SC Strategy Ltd

Emerging challenges for the Tech Sector: The Securitisation of Trade (Guest blog by SC Strategy Ltd)

Guest blog by SC Strategy Ltd #NatSec2023

Securitisation of global trade and investment is on the rise. Across the world, there is a strengthening of export controls, screening of inbound and outbound investment, sanctions, and domestic incentives that privilege a re-shoring of critical industries and technology. Businesses must understand the tapestry of opportunities and threats created by these trends, and interpret government requirements and concerns as they relate to specific initiatives.

As an example, the National Security & Investment Act 2021 (NSIA), introduced on 4 January 2022, has revolutionised His Majesty’s Government’s (“HMG”) ability to screen investments over national security concerns, giving HMG unprecedented powers. The Act defines potentially problematic transaction types and activities of companies and institutions, within 17 sensitive sectors of the economy. ‘National Security’ remains undefined – a longstanding HMG policy reflecting the fluid nature of national security and to deliver flexibility required to protect it.

However, that lack of definition poses a challenge for tech firms where national security risks emanating from their activities, technologies, and know-how are more difficult to understand.

Understanding Government Concerns

The computing hardware sector is emblematic of the complexity of Government national security concerns. Government is considering the full technological, market, policy and strategic context of transactions. We also see concern for direct and indirect implications, and a range of time horizons. These are our takeaways from two NSIA final orders issued in this sector to date:

  1. Pulsic is a UK-based supplier of Electronic Design Automation (“EDA”) services whose acquisition by Chinese Super Orange HK Holding Ltd was blocked on 17 August 2022. The final order indicates fears the transaction could have strengthened supply chains serving Chinese national security customers, and created opportunities to introduce cyber vulnerabilities in hardware which may be used by others in future. The company would have known that EDA services are a critical part of a competitive semiconductor value chain and could offer insight into chip designs. But would they have had the time and ability to analyse Chinese goals on semiconductors, the close links of their sector to the Chinese state, and the strategic cyber benefits for China, and threats to the UK, of an ability to have oversight of semiconductor designs? An appreciation of UK goals to prevent competitor nations boosting their military and national security capabilities could have completed the puzzle.
  2. In November 2022 HMG ordered Nexperia to roll-back its stake in Newport Wafer Fab to 14% - now the subject of a judicial review. HMG was concerned by the planned reintroduction of compound semiconductor (“CS”) activities potentially creating unhealthy liabilities or vulnerabilities in the UK CS ecosystem, and Newport’s presence in the South Wales CS Cluster, potentially compromising other firms’ ability to work with national security in future. The deal took place before the NSIA’s introduction, but Nexperia would have aimed to judge many factors during HMG’s review. These might have included: risk to technology and knowhow transfer posed by its Chinese ownership; its’ ability to truly firewall its people from partners in the CS cluster; the stock HMG would place in the future value of its CS ecosystem; and the future value of CS technologies to military clients, in the context of HMG policy to assure military-relevant supply and research.


Avoiding business with entities from certain countries would not be a fair conclusion. Cases involving Chinese firms have been permitted with mitigations. Equally, cases in other sectors involving US and other acquirers have faced heavy mitigations. This reflects a ‘cases, not countries’ approach by HMG.

With Government increasingly concerned about the national security risks arising from foreign investment, it therefore seems incumbent on companies to understand the specific and complex national security risks Government may perceive. This will aid planning, inform “go / no go” decisions, and guide strategy when going through an investment screening process like the NSIA.

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SC Strategy Ltd

SC Strategy Ltd

SC Strategy Ltd is an international strategy and risk consultancy based in London, run by experienced policy makers, strategists and planners.