Data localization is a hot topic in the digital world. It refers to the practice of keeping data within the region it originated from, rather than transferring it to another country for processing or storage. Data localization laws are enacted by governments for various reasons, such as protecting the privacy and security of their citizens, promoting local economic development, or asserting their sovereignty over their data.
However, data localization also poses significant challenges and costs for businesses and consumers. It can affect the efficiency, scalability, and innovation of cloud computing and other digital services that rely on cross-border data flows. It can also create trade barriers and fragment the global digital market.
In this article, we will explore the following questions:
- What are the main drivers and examples of data localization laws around the world?
- What are the implications and impacts of data localization for businesses and consumers?
- How can businesses and consumers adapt to and benefit from data localization?
## Drivers and examples of data localization laws
Data localization laws vary in scope and intensity across different countries and regions. Some of them are sector-specific, while others are general. Some of them require data to be stored exclusively within the country, while others allow data to be transferred abroad under certain conditions.
According to a report by the European Centre for International Political Economy (ECIPE), there were 84 data localization measures in force or proposed in 64 countries as of 2019. Some of the most notable examples are:
- China: China has one of the most comprehensive and restrictive data localization regimes in the world. Its Cybersecurity Law requires critical information infrastructure operators (CIIOs) to store personal information and important business data within China, and to undergo a security assessment before transferring it abroad. Its Online Publishing Service Regulation requires online publishing service providers to use domestic servers and store their content within China.
- India: India has also adopted several data localization measures in recent years. Its Personal Data Protection Bill (PDPB) mandates that sensitive personal data (such as financial, health, or biometric data) must be stored in India, and can only be transferred abroad with explicit consent and subject to adequacy or contractual safeguards. Its Reserve Bank of India (RBI) Circular requires payment system providers to store all payment-related data within India.
- European Union: The EU has a strong data protection framework under its General Data Protection Regulation (GDPR), which regulates the processing and transfer of personal data within and outside the EU. The GDPR does not impose data localization per se, but it requires that personal data can only be transferred to third countries that provide an adequate level of protection, or under appropriate safeguards such as standard contractual clauses or binding corporate rules. The EU also has specific data localization rules for certain sectors, such as public documents, accounting records, or health records.
## Implications and impacts of data localization
Data localization has significant implications and impacts for businesses and consumers across various dimensions, such as:
- Cost: Data localization can increase the cost of doing business for both domestic and foreign companies, as they have to invest in additional infrastructure, personnel, compliance, and legal fees to store and process data locally. According to a study by Leviathan Security Group, data localization can increase the cost of cloud computing by 30% to 60% for some countries.
- Performance: Data localization can affect the performance and quality of digital services that rely on cross-border data flows, such as cloud computing, e-commerce, or social media. Data localization can reduce the speed, reliability, and security of data transmission, as well as limit the access to global markets and customers. According to a study by ECIPE, data localization can reduce GDP by 0.1% to 1.7% for some countries.
- Innovation: Data localization can hamper the innovation and competitiveness of digital businesses that depend on large-scale data analysis and artificial intelligence (AI). Data localization can reduce the availability and diversity of data sources, as well as restrict the collaboration and knowledge sharing among researchers and developers across borders. According to a study by McKinsey Global Institute, cross-border data flows can increase global GDP by $2.8 trillion by 2025 through productivity gains and innovation spillovers.
## Adaptation and opportunities from data localization
Despite the challenges and costs of data localization, there are also opportunities for businesses
and consumers to adapt to and benefit from it. Some of the possible strategies are: