Xiaomi In India Data Shuffle
Smartphone sensation Xiaomi is rapidly becoming an expert at shuffling its user data from country to country, with word that it will store data for its users in India on western-based servers rather than shipping such information back to computers in its home China market. This particular move looks largely preemptive, aimed at preventing a new brouhaha similar to one it faced in Taiwan related to concerns over national security and protection of user privacy. The move looks like a relatively smart one in the current climate of global concerns about cyber-security. But it does pose a larger challenge of added costs for China-based companies like Xiaomi with global aspirations.
This particular issue appears to center less on hacking and more on keeping data on local citizens in places like India out of the hands of nosy government officials in Beijing. While improving encryption technology is helping many companies to improve their defenses against hackers, those same companies are powerless to deny demands for data from governments that say are conducting investigations into criminal matters.
Thus, for example, if Beijing decided it wanted to investigate an India-based user of Xiaomi’s popular smartphones, it could theoretically go to the company and demand it hand over that data if the information was stored on a China-based computer. That kind of dilemma got US search giant Yahoo (Nasdaq: YHOO) into trouble around a decade ago, when Beijing demanded the company hand over China-based data from the email account of political dissident. Yahoo closed down its China-based email service last year and never gave a reason (previous post), but this kind of political consideration was almost certainly at least a small element of its decision.
With all that background in mind, let’s take a closer look at the latest headlines that say Xiaomi is moving data for its India users to servers located outside China. (English article) Xiaomi made the decision after reportedly getting a warning from the Indian Air Force, which said the company’s current practice of storing Indian user data on China-based computers posed a security threat. To address the problem, Xiaomi reportedly plans to shift the storage of its India user data to Amazon (Nasdaq: AMZN) servers based in Singapore and the US.
This particular issue looks quite similar to what happened last month in Taiwan, when the local government opened its own investigation into Xiaomi phones. (previous post) Like the case with India, Taiwan also believed that Xiaomi phones could pose a national security threat by shipping data on locally based users back to servers in China. That could theoretically allow Beijing to demand any such data from Xiaomi, even though the actual users would be based in Taiwan.
We haven’t heard any final word on the Taiwan investigation, but I would expect that the government may also require Xiaomi to store data on local users on servers outside China. Any astute readers will notice that India and Taiwan don’t seem too concerned about their users’ data being stored in developed countries like the US and Singapore. That’s probably because those places have much stricter judicial oversight that strongly limits the government’s ability to demand company data whenever it wants to.
By comparison, China’s system is more opaque and the government probably has far more power to demand company data without much accountability. At the end of the day, foreign government suspicion about Beijing’s ability to snoop will probably bring higher costs for globally-minded Chinese tech firms like Xiaomi, forcing them to set up larger offshore operations to address such concerns. But that’s the cost of doing business for Chinese companies, which will face skepticism from foreign government due to their country of origin.
Bottom line: Xioami and other Chinese tech companies will face higher costs in their global expansions due to national security concerns from foreign governments wary of their country of origin.
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