ITIC - How Data Localization Requirements Impact Entrepreneurship

Edward Brzytwa, Director, Global Policy at the Information Technology Industry Council, U.S. based trade association, have provided us with a comment piece on data localisation for techUK's Data Driven Economy Week

 

How Data Localization Requirements Impact Entrepreneurship

Computing power. Less than a generation ago, most businesses could only access enough it to perform tasks essential to their operations, such as managing their human resources and keeping track of their finances. An average firm in the United States chose to maintain its own set of servers and have an in house IT group, both of which constitute substantial fixed costs. As global supplies of semiconductors and chips increased, their prices decreased; and more importantly, as outlined by Moore's law, their processing power increased as well. The basic story here is that firms of all sizes in all sectors can today access significant computing power that was not available to them in the early stages of the Internet era.

But the evolving story is even more interesting: firms of all sizes do not need to have their own servers and in house IT groups to pursue their business objectives. Through the creation and exponential growth of cloud computing, massive computing power and a growing array of digital services, such as marketing, deep learning, and forecasting, are available to any firm anywhere in the world. A small firm, even a microenterprise run by one individual with an idea and an app or innovative product, can go global from day one and offer services to potential customers in any country, all through large, scaled up, economically efficient public clouds, e.g. data centers.

Widespread use of cloud computing will result in greater productivity increases, elimination of information asymmetries that have plagued small firms, and reductions in costs of doing business. Governments and businesses alike should not take this trend for granted. If governments want a networked, globalized world full of massive computing power to benefit firms of all sizes, they must allow information and data to flow freely across borders. If cross-border exchange of information and data were to stop, so too would international trade in our modern global economy.

ITI and our members are witnessing a troubling trend where it is becoming increasingly difficult for information and data to flow across borders. Many governments, in both the developed and developing worlds, have decided to require firms (domestic and foreign) to store data within the territories of their countries. The objectives for these policies often relate to protecting personal data, strengthening cybersecurity, or providing access to law enforcement communities. Other governments cite these objectives and add that they are seeking to nurturing their local information and communication technology industries.

The economic consequences of these data localization requirements are negative and manifold. First, compliance with these requirements is costly and disproportionately so for small and medium-sized enterprises and entrepreneurs. Large firms can afford the marginal costs of compliance, but small firms can't. A 2015 study by the Leviathan Security Group demonstrated that these requirements are enormously harmful to local companies, whose costs rise by 30-60% as local data centers may not have the scale of large public clouds and therefore charge higher prices for server space. Large public clouds also make regulatory compliance less costly and more time efficient than using a local data center, which can make a big difference for an SME seeking to expand into multiple markets.

Finally, data localization requirements deprive SMEs of the opportunities of cutting edge data analytics, since they would not be able to transfer their customer data to public clouds located abroad and use massive computing power to turn that data into even more valuable marketing and market expansion information.

ITI has consistently advocated that governments all over the world avoid and rollback data localization requirements, not just in specific markets but also in multilateral settings such as the G7, where we are making recommendations to G7 Leaders in this regard this year in advance of their Summit in Japan in late May. We have also expressed our strong support for trade agreements like the Trans-Pacific Partnership, which is a significant step in the right direction towards preventing these barriers to trade and establishing the best possible policy environment for governments, businesses, and individuals to harness the innovative potential of massive computing power.

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For more information about techUK's Data Driven Economy Week please contact

  • Alice Jackson

    Alice Jackson

    Associate Director | Communications
    T 020 7331 2163

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