Joint Ventures/Foreign Acquisitions

Joint ventures, joint research, and exchange agreements offer potentially significant collection opportunities for foreign governments and corporations. As with other tactics, joint efforts place foreign personnel in close proximity to U.S. personnel and afford potential access to scientific and technical programs and information. Through joint-venture negotiations, U.S. contractors may reveal unnecessarily large amounts of technical data as part of the bidding process.

Despite the existence of the Committee on Foreign Investments in the United States (CFIUS), foreign acquisition of technology and companies in the U.S. defense industry continues to generate significant concerns regarding foreign access to sensitive U.S. proprietary information. Once a foreign entity gains ownership, control, or influence over a U.S. company with classified contracts, that ownership, control, or influence must be mitigated through an insulating instrument approved by the Defense Department. Without an approved insulating legal instrument, the U.S. company and the foreign investor face the possibility of contract cancellations and loss of future classified contracts.

Several countries use corporate mergers and acquisitions to acquire technology. The vast majority of these transactions are made for completely legitimate purposes. However, sometimes they are made specifically to allow a foreign company to acquire critical U.S. technologies without spending their own resources on R&D.

According to a 1994 U.S. Government document entitled "Report on U.S. Critical Technology Companies," 984 foreign mergers and acquisitions of U.S. critical technology companies occurred between 1 January 1985 and 1 October 1993. All but a handful of these mergers and acquisitions were friendly, and four countries accounted for 68 percent of them. Of the total, 60 percent involved U.S. firms in advanced materials, computers -- including software and peripherals -- and biotechnology, areas of relative U.S. technical strength. The remaining deals involved US firms in electronics and semiconductors, professional and scientific instrumentation, communications equipment, advanced manufacturing, and aircraft and spare parts.