Data Localization: An In-Depth Analysis

Ever since the internet has been invented, the world has become a global village. This means that at the present moment, data can flow freely all over the world. However, many countries are not happy with this arrangement. Countries like Russia and China are already trying to enforce data localization laws which would inhibit the free movement of data across the world. The Indian government has also shown interest in data localization. The fact that all the developing nations of the world are in some form demanding data localization is both interesting as well as unprecedented. In this article, we will have a closer look at what data localization means and its pros as well as cons.

Define Data Localization:

Data localization is a way of storing data within the physical boundaries of a country. For instance, the data which has been generated in China should be stored within the physical boundaries of China. Some countries also demand that the company creating and transmitting this data should have a physical presence within the geographical boundaries. The main reason behind the push in data localization laws has been the increasing concern about how the security and privacy of data will be maintained once it has crossed international borders.

Many governments insist that data localization is the only way forward to ensure that the data on the internet is safe and secure. On the other hand, proponents of open internet believe that data localization will destroy the free internet which has become the backbone of the modern economy.

Advantages of Data Localization

Some of the advantages of data localization are as follows:

  • Protectionism: Data localization is conducive to the dominant political narrative that can be heard in the modern political world. There is a new saying in the business world that “data is the new oil.” This means that data is extremely valuable and if properly analyzed can be the backbone of a successful business. Governments that want to implement data localization want to give a competitive edge to their local corporations. The government will prevent the flow of data to external countries. Hence, the data will be available for internal use by local companies. This will create an information asymmetry which will turn out to be favorable for the local companies.
  • Taxation: Proponents of data localization also believe that data should be considered to be a national resource. This means that the government of the nation should have a right on the revenue generated from that resource. Just like the inflow and outflow of goods and services are taxed, the movement of data in and out of the nation should also be taxed. These additional taxes can then be used by the government for more social programs.
  • Foreign Surveillance: Lastly, the most important concern about the free internet is that it allows the storage of data in countries which may be hostile. For instance, China and the United States are currently in the middle of a trade war. In such a situation if data pertaining to Chinese citizens is stored in servers which are present in the United States, there is a likelihood that such data may be subject to foreign surveillance. Many countries have woken up to the threat of foreign surveillance of their information channels and hence have started demanding data localization.

Disadvantages

Most people do not believe with the suggestions that the flow of data should be restricted or monetized. However, everyone seems to agree with the fact that security threats need to be mitigated. Let’s have a look at some more disadvantages.

  • The End of The Internet: The internet is based on the principle of free movement of data. If this free movement is hindered by the imposition of taxes or by undue protectionism, it will end up destroying the internet. The reason why many companies prefer the internet is that it is cheaper and free from excessive regulation. If governments make any changes to the current regime, they might end up killing the most revolutionary technology that the world has ever produced.
  • Government Surveillance: There are security problems associated with storing all the data at a single location as well. Firstly, storing all the data within one geographical region is the exact opposite of the diversification approach that is most commonly used by multinational companies. Secondly, citizens of many countries are not keen on giving their governments the ability to spy on them. If all the data is stored within the geographical boundaries, governments will be able to collate all the data and invade the privacy of individuals if need be.

The GDPR Adequacy Status

The European nations have created a better alternative to data localization. The EU defines a list of countries which meet their standards for data transfer. This is known as an “adequacy status.” Hence, data pertaining to European citizens can be transferred to other countries and companies based on their adequacy status. This gives the governments the control that they need over the data which has been generated in their nation. At the same time, it does not cause undue problems for companies.

To sum it up, the idea of data localization may be unnecessary. There may be cheaper and more acceptable workarounds to solve the underlying problem.


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The article is Written By “Prachi Juneja” and Reviewed By Management Study Guide Content Team. MSG Content Team comprises experienced Faculty Member, Professionals and Subject Matter Experts. To Know more, click on About Us. The use of this material is free for learning and education purpose. Please reference authorship of content used, including link(s) to ManagementStudyGuide.com and the content page url.


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