Data Protectionism: The Growing Menace to Global Business

By Alan Beattie (Source @ The Financial Times),

Scania is well used to its vehicles being delayed at border crossings by officious customs officers and laborious paperwork. Yet these days, the Swedish truck company’s business is hindered as much by international obstructions to its data as roadblocks on its lorries.

As a Scania truck is driven through the EU, a small box sends diagnostic data — speed, fuel use, engine performance, even driving technique — to the company’s headquarters in Sweden. The information adds to a vast international database that helps owners manage the servicing of their fleet and Scania improve the manufacturing of the next generation of vehicles.

“The world is moving towards an autonomous, electrified transport system, and that needs data,” says Hakan Schildt of Scania’s connected services operation. “Transport is becoming a data business.”

In China, however, which severely restricts international transfers of data, the company incurs extra costs setting up local data storage and segregating some of the information from the rest of its operations. Many countries are imposing similar, if less drastic, restrictions. “We are having to regionalise a lot of our operations and set up local data processing,” Mr Schildt says. “National legislation is always changing.”

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The McKinsey Global Institute estimates that cross-border flows of goods, services and data added 10 per cent to global gross domestic product in the decade to 2015, with data providing a third of that increase. That share of the contribution seems likely to rise: conventional trade has slowed sharply, while digital flows have surged. Yet as the whole economy becomes more information-intensive — even heavy industries such as oil and gas are becoming data-driven — the cost of blocking those flows increases.

As well as the expense of adding new national data centres, companies run much less efficiently if their information is Balkanised. Nicholas Hodac, government and regulatory affairs executive for IBM in Brussels, says an increasing number of the company’s clients run operations entirely in the cloud. “You can’t offer efficient services to clients in the artificial intelligence or analytics space unless you can transfer data to where it can be best served,” he says.

Yet that is precisely what is happening. Governments have sharply increased “data localisation” measures requiring information to be held in servers inside individual countries. The European Centre for International Political Economy, a think-tank, calculates that in the decade to 2016, the number of significant data localisation measures in the world’s large economies nearly tripled from 31 to 84.

Even in advanced economies, exporting data on individuals is heavily restricted because of privacy concerns, which have been highlighted by the Facebook/ Cambridge Analytica scandal. Many EU countries have curbs on moving personal data even to other member states. Studies for the Global Commission on Internet Governance, an independent research project, estimates that current constraints — such as restrictions on moving data on banking, gambling and tax records — reduces EU GDP by half a per cent.