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After Tiktok: International Business and the Splinternet

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After Tiktok: International Business and the Splinternet Stallkamp, M. 2021. After TikTok: International Business and the Splinternet. AIB Insights, 21(2). https://doi.org/10.46697/001c.21943. Article After TikTok: International Business and the Splinternet a Maximilian Stallkamp 1 1 Virginia Tech, USA Keywords: global strategy, digitalization, internationalization, digital firms, internet https://doi.org/10.46697/001c.21943 AIB Insights Vol. 21, Issue 2, 2021 The internet is evolving from a globally connected and lightly regulated network to a ‘splinternet’ governed by diverging national policies. Governments are effectively re-creating national borders in digital space by asserting their authority over areas such as data protection, taxation, censorship, and national security. This increasing fragmentation of the internet creates new challenges for companies that use the internet to offer digital products and services (such as apps) internationally. Rather than addressing global markets more or less by default, these digital firms must make strategic choices with respect to foreign market selection, entry modes, local adaptation, and stakeholder management. “The era of a global Internet may be passing. Govern- THE EARLY INTERNET AND INTERNATIONAL ments across the world are putting up barriers to the free flow of information across borders” (Chander & Lê, 2014) BUSINESS The early internet, as a decentralized and globally con- INTRODUCTION nected network, seemed to be inherently location-agnostic and borderless. Many internet pioneers subscribed to Bar- TikTok, a mobile app for sharing short videos, appeared to low’s (1996) famous Declaration of the Independence of Cy- be a global success story for its Beijing-based parent com- berspace, which argued that governments did not have the pany ByteDance, and a prime example of internet-based in- right – nor the technical ability – to enforce their national ternationalization. In little over two years, the app picked laws on the internet, proclaiming that “cyberspace does not up hundreds of millions of users worldwide, with nearly 100 lie within your borders”. In hindsight, Barlow’s views might million in the United States alone (Sherman, 2020). How- charitably be described as idealistic. And yet, with the ex- ever, in July 2020, the US government announced plans to ception of China and a handful of authoritarian countries, ban the app from the American market, citing national se- the early internet and the emerging digital economy were curity concerns due to potential Chinese government influ- mostly characterized by a laissez-faire attitude among regu- ence over ByteDance. TikTok, previously the poster child for lators (Hill, 2014). As late as 2013, former Google CEO Eric the seemingly boundless global business opportunities of Schmidt called the internet “the world’s largest ungoverned the digital economy, suddenly became a cautionary tale il- space” and “an online world that is not truly bound by ter- lustrating the re-emergence of national borders in the dig- restrial laws” (Schmidt & Cohen, 2013: p.1). ital economy. Over the past decade, governments around Digital firms benefitted greatly from this open, global in- the world have increasingly asserted their sovereignty over ternet. Digital products and services – such as apps, games, the digital domain, imposing local laws and regulations on and social media platforms – could be distributed remotely digital transactions. This accelerating trend is replacing the over the internet, giving companies instant access to po- open, lightly regulated, and globally connected internet tential users around the world (with the exception of China with a fragmented digital reality – often referred to as the and a few other countries). By serving foreign markets vir- splinternet (Lemley, 2020). In this article, I review the main tually from a distance, digital firms ouldc avoid or postpone forces driving this fragmentation and discuss the major costly foreign direct investments, which allowed even small consequences for the international strategies of digital startups to internationalize rapidly (Monaghan, Tippmann, firms, i.e., firms selling purely digital products. As the im- & Coviello, 2020). As many regulators and tax authorities portance of the digital economy continues to grow, it is cru- were unprepared to handle intangible digital services and cial for practitioners and scholars of international business unfamiliar digital business models, digital firms erew often to understand the changing nature of the internet and its able to extend their user base in foreign markets with little implications for business. regard to local rules. a Contact: [email protected] After TikTok: International Business and the Splinternet This is not to say that internationalization became trivial revenues, rather than profits, to reduce tax avoidance. Like or inevitable. For many digital firms, issues such as cultural data protection rules, taxation of digital services is not in- differences, customer preferences, and different languages herently discriminatory against foreign companies, but the remained formidable market entry barriers (Shaheer, 2020). development of a nation-based patchwork of digital taxes However, the open nature of the internet at least allowed introduces substantial uncertainty and compliance costs for digital firms to make their products globally available at digital firms seeking to offer their services internationally. minimal costs, which represented a major departure from traditional international business. CENSORSHIP One of the defining eaturesf of the early internet was the SPLINTERNET: THE FRAGMENTATION OF THE free flow of information. Any content posted to the web INTERNET could be accessed by internet users anywhere. This is no longer the case, as governments increasingly restrict which Over the past decade, there has been a sharp increase in content is accessible and which digital apps are available regulation of the internet, especially with respect to cross- from within their national territory. The most well-known border digital transactions (US International Trade Com- censorship scheme is the Chinese Great Firewall, which not mission, 2017). By insisting that digital firms ollof w local only blocks many foreign-owned digital services but lever- rules and respect national policies, governments are effec- ages advanced surveillance technologies to remove sensi- tively restoring the role of national borders in the digital tive content. Although determined individuals may find economy. While there are many different motivations for ways to circumvent digital censorship, the Chinese ap- such restrictive measures, four broad concerns account for a proach is generally effective and has prompted similar ini- large proportion of digital fragmentation: Privacy/data pro- tiatives in other countries. While content filtering and re- tection, taxation, censorship, and national security. strictions on foreign apps were initially mostly used by authoritarian governments (Hill, 2014), many democratic PRIVACY AND DATA PROTECTION countries now debate to what extent objectionable or harm- ful content (e.g., extremism, misinformation) should be Most digital firms ollecc t vast amounts of data on their suppressed. As more countries wall off ‘their’ internet and users. In response, privacy concerns are growing around the impose restrictions on content, users located in different world, especially after revelations of rampant state and pri- parts of the world increasingly see different versions of the vate espionage, such as the Snowden and Cambridge Ana- internet. For companies producing digital content, prod- lytica scandals (Hill, 2014). Over 120 jurisdictions have now ucts, and services, this creates new barriers to serving for- passed legislation governing data protection and the digi- eign markets. tal privacy rights of their citizens (Congressional Research Congressional Research Service, 2019). The most influential NATIONAL SECURITY AND GEOPOLITICS example is the European Union’s 2018 General Data Pro- tection Regulation (GDPR), which grants extensive privacy As the TikTok example shows, some government interven- rights and imposes stringent obligations on companies to tions are motivated by national security. Given the exten- safeguard data (Kaelin, 2019). There has also been a surge sive data collected by many software applications and the in data localization laws, which restrict cross-border data far-reaching influence of social media, governments are jus- flows and require certain data be stored on domestic servers tifiably oncc erned about foreign espionage and the ability of (Chander & Lê, 2014). Data protection and localization reg- foreign powers to exert political influence. Responses range ulations are not necessarily discriminatory against foreign from targeted measures designed to protect domestic data companies, as they apply to domestic and foreign compa- to wholesale bans of foreign apps and services. Moreover, nies alike. However, much like regulatory non-tariff barriers governments may block foreign apps as a tactical maneu- in conventional trade, they create entry barriers and in- ver in broader geopolitical disputes, as was reportedly the crease costs for foreign companies, which now face a com- case with India’s ban in September 2020 of over 100 Chinese plex array of different host-country regulations (US Inter- apps (Kastrenakis, 2020). As governments are beginning to national Trade Commission, 2017). view the digital economy through the lens of national secu-
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