In recent years, the U.S. government and the leaders of other Western countries have learned the importance of asking questions about where critical materials are produced and whether foreign countries control any of the physical infrastructure to mine, refine and transport them. 

An equally important question must be asked about how ownership structures and strategic affiliations can affect certain companies’ business decisions along the supply chain. 

The unintended effects of ownership-related decision making can reverberate across an entire industry, as Dutch semiconductor company Nexperia’s case demonstrated last year. When the Dutch government intervened in the firm’s operations over concerns about the potential transfer of vital intellectual property and funds – years after its acquisition by China’s Wingtech – Beijing responded by restricting the export of Nexperia’s finished chips. The resulting supply disruption quickly affected companies in Europe’s automotive industry, putting production at Bosch, Volkswagen and other major manufacturers at risk. 

Importantly, the chips were not sophisticated, but the scale and embeddedness of their production made their replacement especially difficult. The lesson drawn from Nexperia’s case was not simply about geopolitical rivalry and national borders. A government’s ability to exert influence over a firm’s production architecture and corporate control at a critical part of its operating network was highlighted as a necessary condition for protecting its national interests. 

It is precisely similar security risks that motivated the government of Germany to block the sale of Elmos Semiconductor’s wafer factory. The proposed private equity deal would have transferred the facility over to Silex Microsystems, a subsidiary of China’s Sai MicroElectronics based in Sweden. The Federal Ministry for Economic Affairs concluded that the acquisition would endanger public order and security, citing concerns about critical infrastructure and Germany’s technological sovereignty in the semiconductor industry. 

While in Nexperia’s case, the risk of restrictions on physical product flows actually materialized, the dispute over Elmos altogether prevented opportunities for such risks to emerge. Western policies have become much more sophisticated about overseeing where critical production happens, but much more attention should be paid to who has the power to make decisions about such production. 

More recent news about attempted changes to the corporate ownership structure of Korea Zinc emerged at a time when the firm has committed to a substantial cooperation with the United States through Project Crucible, that would see the a construction of a $7.4 billion critical minerals and non-ferrous metal recycling and refining facility in Clarksville, Tennessee.

The joint venture was propelled by the shared intentions of the governments of the U.S. and South Korea to target U.S. supply chain independence by producing 13 metals, including 11 U.S.-designated critical minerals, alongside semiconductor-grade sulfuric acid. While Young Poong and MBK Partners, who sought to increase their share of ownership over Korea Zinc in order to gain a controlling majority, purportedly support the project in Tennessee, previous messages broadcast by company executives at MBK Partners and Young Poong opposed the initiative on the grounds of posing a national security risk to Korea by putting strategic assets under American control. 

MBK’s business ties which have firmly embedded it in China’s own business network, including through deals related to Beijing Bowei and CAR Inc. in Beijing, among others, make the control they are seeking to exert of Korea Zinc particularly concerning. MBK itself defines China as one of its three core markets alongside Korea and Japan, and the China Investment Corporation, the country’s sovereign wealth fund, committed funds equivalent to roughly 5% of MBK Partners’ sixth investment fund. 

There have been widespread industry concerns that were MBK Partners to assist Young Poong win the control battle for Korea Zinc, U.S. plans for a supply chain independent from China may be jeopardized. The case should therefore be made for the further examination of a MBK Partner’s ownership ecosystem when the underlying asset is at the heart of both Korean and U.S. supply chain policies. 

During a potential geopolitical crisis, even the least politically motivated ownership and management structures could become consequential. When tensions do ultimately arise, even a commercially manageable and mutually beneficial economic structure can become strategically leveraged, as in the case of Nexperia. Blocking MBK Partners and Young Poong from acquiring control, as Germany blocked the acquisition of the Elmos facility could be a necessary step, even if it were to create geopolitical tensions where none previously existed. 

Supply chain resilience depends on where factories are located and also who controls the companies behind those plants. Sound policymaking in the field of strategic minerals therefore requires an economic-security test that is proportionate to the importance of the underlying asset.