Russia’s war in Ukraine shows the importance of assessing geopolitical and country risks for data center companies. Data center location site selection should start by assuring the risk profile is within a company’s risk tolerance.
Data center planners assess potential facility locations based on a rather long list of basic requirements, including costs and economics, regulatory rules, environmental considerations, and many others. The first step is always, or at least it should be, assessing the risk profile of operating in any given location. Risks, like basic requirements, are also a long list of issues like natural disaster risk, power infrastructure stability risk, economic market stability risk, etc. But the very first risk to assess is geopolitical and country risk. If the basic geopolitical and country risk characteristics do not fit a company’s risk tolerance, all the rest is moot.
The Russian war in Ukraine is a cautionary tale
In case there was any doubt, the importance of geopolitical and country risk is critical to data center market expansion planning. The Russian war in Ukraine and the resulting fallout for western country businesses operating in Russia or Belarus is a cautionary tale. Over time, what will also play out is how far-reaching the geopolitical discourse might be and how many countries will fall on one side or the other, sadly creating more division around the world and raising risk profiles. Should additional countries openly ally themselves with Russia, international economic sanctions and the fallout will cascade to them.
Fortunately, some very smart people oversee data center market planning for cloud and colocation service providers (SPs). However, their names are not in the news for having to cease operations in Russia or Belarus for fear of overstepping economic sanctions.
What’s important for market planners to remember is the wide variety of countries and regions at risk for adverse geopolitical events or the multitude of other risk factors that pose a danger to continuous operations and employee safety.
There’s a reason Russia, Belarus, and many other countries have not been the beneficiaries of massive data center developments and the trickle-down economic benefits they bring. It’s just too risky. The Russian war in Ukraine is a clear illustration of this. In fact, looking at data from Omdia’s Data Center Building Tracker – 1H22, of the 38 largest global cloud and colocation SPs covered, not even one owns and operates data centers in Russia, Belarus, or Ukraine.
These three countries have not remotely cornered the market as a risky business environment. Many countries would be great locations for data centers, but the big data center builders broadly ignore them because of geopolitical and country risk characteristics. Where risk is a concern, but a country/market seems appealing, SPs tend to lean on local partners for data center capacity or acquire existing companies. Digital Realty and Equinix have both recently acquired companies in South African countries. Cloud SPs have been partnering with both governments and telcos in Middle East countries. Both are risk-mitigation strategies instead of the cost and operational responsibilities of building their data centers.
Adverse events such as war, economic collapse, civil unrest, and many others can be catalysts that drive government action that can quickly change a country’s risk profile. The question for every country is: What is the sustainability of geopolitical calm? Six months ago, the general thought was geopolitical calm in Ukraine would be sustainable after 30 years as a sovereign country.
Risk mitigation is a far-reaching issue, and there are numerous countries or regions where business operation risk profiles are a concern. Many countries with high-risk profiles get little attention compared to big newsmakers like Russia. Geopolitical events, local and regional economics, and all the traditional risk issues data centers face make country risk assessment a paramount requirement.
Some companies specialize in monitoring global events and risk characteristics, ranging from geopolitical issues, terrorist events, economic risks, etc. Sometimes these risks can be quite subtle to the casual international observer. Global businesses, including hyperscale cloud and the largest colocation companies, use their services and insight well. The cost of not performing a thorough geopolitical and country risk assessment is just too high to ignore.
Cloud & Colocation Services Tracker – 1H22 (July 2022)
Data Center Building Report – 2022 (June 2022)
Cloud Strategies: North American Enterprise Survey – 2022 (February 2022)
Alan Howard, Principal Analyst, Cloud & Data Center Research Practice