Sovereign cloud demand booms in APAC amid geopolitical tensions

A new report by market intelligence firm IDC has predicted a surge in the adoption of sovereign clouds across Asia Pacific governments in the wake of geopolitical tensions and data privacy regulations.

The report revealed that one-third of the APAC governments plan to adopt sovereign cloud by 2026, driven by concerns around cyberthreats, evolving data residency regulations, and data security.

“Governments also see sovereign cloud as an economic advantage, encouraging investments from hyperscalers in local data centers to enhance the digital economy and industry prospects,” the report said.

IDC defines a sovereign cloud as a subset of digital sovereignty which is “an architecture that is enabled to meet a country’s data residency, sovereignty regulatory, and audit requirements.”

The report highlighted that 17% of APAC governments already use sovereign clouds and one-third intend to adopt sovereign clouds in the next two years. This underscores the growing interest in sovereign cloud in the region, the report said.

Moreover, “33% of APAC governments are evaluating the feasibility of these solutions but have not finalized their decisions yet,” IDC said in an eBook prepared based on the report.

According to another research by Capgemini, in Australia alone, 64% of organizations are actively investigating a sovereign cloud strategy, compared to 52% globally.

Though there is a notable surge in interest for sovereign cloud adoption by tightly regulated sectors including the public sector, the trend is not limited to them, said Ravikant Sharma, research director for government insights at IDC Asia/Pacific.

“This trend extends to related industries affected by policies centered around sovereignty, like utilities and healthcare,” Sharma said. “These sectors are proactively preparing for potential shifts in regulations and government policies, especially concerning data residency requirements.”

Cloud giants vie for a slice of the sovereign cloud pie

Global spending on sovereign cloud solutions is expected to surpass $250 billion by 2027, according to IDC. The report noted that major cloud providers such as AWS, Google Cloud, and Microsoft Azure are actively expanding their offerings to meet the growing APAC sovereign cloud demand.

“Three hyperscalers (namely AWS, Google Cloud, and Microsoft Azure) consistently adapt their sovereign cloud solutions, adding more features to enhance their appeal to government entities,” IDC said in the eBook.

These providers are customizing their services to meet the specific requirements of the governments in these regions, such as offering dedicated data centers and implementing robust security measures.

Navigating the sovereign cloud landscape

However, the path to adoption isn’t without hurdles, noted the report. “However, they (APAC governments) also face significant challenges such as high implementation costs, complexity, security concerns, and potential constraints on innovation.”

“Successful adoption requires prioritizing investments, classifying data, and aligning trust with organizational goals. Vendors must educate thoroughly and offer practical solutions for effective sovereign cloud implementation,” said IDC’s  Sharma.

Organizations in the APAC region, Sharma said, are considering adopting sovereign cloud due to the “perceived benefits it offers.” The leading factor, he said, is data security and privacy. “This concern is closely tied to the desire to be future-ready for data-driven business innovation, which is the second most significant expected benefit.”

The adoption of cloud by APAC government organizations “will vary by country,” IDC said in the report. “However, overall, the sector lags behind other industries, with three-quarters still identifying their maturity as ad hoc or opportunistic, compared with half of other industries.”

Another significant concern, according to Sharma, is the “potential impact on innovation speed.” “A notable percentage (36%) of digital innovation teams and business lines fear that sovereign cloud could hinder innovation by slowing down processes.”  This fear, he explained, is linked to the importance of cross-industry and cross-border data flows, which are seen as “critical for accelerating innovation.”

As governments in APAC regions navigate the complexities of geopolitical tensions, data sovereignty, and economic growth, sovereign cloud adoption is set to become a significant trend shaping the region’s digital economy. “To navigate this evolving landscape successfully, it’s crucial to establish strong partnerships with reliable and competitive entities. This strategy helps companies weather the changes and remain relevant in the long term,” Sharma said.