At the 2023 Gartner IT Symposium/Xpo, Brian Prentice, VP analyst at Gartner observed that for the last 30 years, multinationals (MNCs) have been managing business operations against the backdrop of assessing risk from the economic and political environments of the countries they operate in.
"They now need to expand sovereign risk to include digital to avoid any potential fallout as it increasingly fragments along national and regional lines," he added.
Gartner defines digital sovereignty as the ability of a government to realise policy without impediments imposed by the digital regulations of foreign governments directly on their citizens and domiciled businesses, including those exercised through digital giants under regulatory control.
“As more countries pursue sovereign digital strategies, what emerges is a complex array of trans-jurisdictional regulatory obligations, tariff restrictions, import/export bans, country-specific technology protocols and local content requirements,” said Prentice.
He cautioned that given digital’s critical role in business operations, executives must understand digital sovereign risk and its impact on business conditions.
Three key areas impacted by digital sovereign risk
Gartner outlines three areas that will be impacted by digital sovereign risk and as such must be managed to avoid potential revenue loss, brand damage or legal action.
Digital sovereign risk flows to tech provider’s MNC clients
Much of the disruption resulting from the growing number of sovereign digital strategies impacts the operations of technology providers. Increased great power competition is playing out with specific technology sectors and providers, such as restrictions on 5G suppliers like Huawei or Nokia. This may be the result of increasing regulatory pressure, shifts in national policy or responses to sudden geopolitical events.
Gartner says how technology providers respond to their own digital sovereign risk can have a significant impact on the operations of multinational customers. MNCs must consider critical technology providers as part of their organisations’ broader supply chain, and proactively assess and mitigate their digital sovereign risk.
Digital productization initiatives need effective localisation
As digital ambition increases, digital productization efforts push enterprises toward the creation of discrete, market-facing digital products, often with their own P&L.
If markets are found in other locations beyond the enterprise’s home country, Gartner recommends taking steps to manage the digital sovereign risk associated with each digital product.
This requires ongoing product localisation to adapt to regulatory requirements, along with the culture and language of customers in a specific market.
Diverging national technology standards, state-sponsored protocols and government-advocated frameworks, all weigh on the decisions required when producing digital products that will serve multiple markets.
Digital geopolitical competition to impact digital businesses
As enterprises increase their digital ambition and become digital businesses, they will have to deal with the same broad array of digital free market frictions as technology providers. This places them in the middle of digital geopolitical competition, which impacts business strategy.
To be successful, Gartner recommends chief risk officers (CROs) become comfortable with digital technology, otherwise, they will struggle to comprehend the expanding scope, purpose, and implications of digital sovereign risk factors on their organisation.