The New Wave of IT-Focused Trade Barriers, a Case Study: Regulatory Obstacles to Cloud Computing

posted by in Cloud Computing, Global Markets June 22, 2012
Jun 22

This week BSA released “Lockout,” a report that shows how a new wave of IT-focused trade barriers threaten to keep global companies out of critical emerging markets — and how the actions of big markets like China and India signal a domino effect, with other emerging economies following suit.

The report describes five distinct types of market barriers that IT companies confront around the world, and it features a series of case studies illustrating how they are implemented in practice. Each of the barriers that the report enumerates deserves careful consideration, so I will discuss them in a series of blog posts over the next week or two. I will start today by focusing on regulatory obstacles to cloud computing.

Policymakers around the world are increasingly aware that by creating a new, more efficient architecture for computing, the cloud offers vast economic benefits. It lets enterprises avoid the cost of buying and maintaining some of the IT hardware and software they need to run their operations, letting them instead have their computing resources delivered over the Internet as infinitely scalable services. For established companies, this creates cost savings that can be reinvested in the core business. For smaller startups, it represents one less obstacle to overcome on the path to growth. 

But while some policymakers see in the cloud an opportunity to accelerate commerce and open markets for expanded trade in digital services, others harbor a more bureaucratic-minded and protectionist urge to slow walk cloud adoption and prevent the technology from achieving global scale in hopes of sheltering local players from multinational competition.

Take China. It has long been known for its “Great Firewall” that impedes Internet commerce. But as our new report illustrates, its central government also has been quietly putting into place a series of less overt policies that make it hard, if not impossible, for foreign companies to offer cloud computing services. For example, companies wanting to provide Web- or cloud-based content services need a license for “value-added telecommunication services” — which, in practice, is only available to Chinese entities.

Moreover, a large and growing number of countries — including China, Indonesia, Vietnam, Brazil, Argentina, Chile, Columbia, Peru and Costa Rica — have adopted or are pursuing policies that prohibit or significantly restrict the flow of data across borders. These data flows are the lifeblood of the global cloud. In parallel, many markets are imposing requirements that data centers serving their citizens be located inside their borders.

I have said it before, and I will say it again: These measures effectively chop the global cloud market into little pieces, sacrificing the benefits of scale it offers. In the end, all players in the global cloud market will benefit from an open and level playing field. But that will require two important policy shifts:

  1. Ironing out today’s international policy patchwork (see BSA’s recent Cloud Scorecard for more on that subject).
  2. Dismantling existing IT-focused market barriers and preventing them from spreading further (see the eight-point action plan that BSA outlines in our new “Lockout” report to promote trade in the digital economy).

Policymakers around the world are right to regard the cloud as a major economic opportunity. But to capture its full benefit, they all must navigate in the same direction. A cohesive global cloud marketplace will offer more value than the sum of its parts.

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