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Cloud Services and Export Performance: Evidence and Implications for EU Policy
By: Guest Author
Subjects: Digital Economy European Union Sectors Services
Hannes Berggren, Trade Policy Advisor, The National Board of Trade
The use of cloud services is reshaping how companies can operate and expand to new markets, making cloud access important for EU competitiveness.
In a recent study of Swedish companies, the National Board of Trade finds a link between the use of cloud computing and various firm-level export indicators. In addition to contributing to firms’ productivity, cloud computing is also positively correlated with the probability of a firm being an exporter, the number of markets it exports to and its export intensity. This means that companies using cloud computing tend to be more internationalised both by exporting more and to more markets.
Moreover, while cloud services generally appear to be beneficial, we find that it is smaller firms that appear to reap the largest export benefits from cloud services. We also find that certain types of cloud services appear to be more important for internationalisation than others, specifically computing power to run software (CPU), customer information management software (CRM) and database services (DB).
One of the first studies on cloud usage and export performance
Our dataset of cloud service use among Swedish companies illustrates that cloud adopters and non-cloud adopters differ in several respects. Cloud adopters are larger on average in terms of size (number of employees) and older. They are more capital intensive and have higher labour productivity. The share of cloud users who export is higher, they have a higher export intensity, and they export to more countries. The share of exporters among cloud users is 40 per cent compared to 15 per cent among non-users. On average, cloud users export to 5.8 countries, while non-cloud users only export to 1.2 countries. Moreover, among exporting firms, the share that export to more than five markets is five times higher for cloud adopters than non-cloud adopters.
Moreover, the proportion of cloud adopters is lower among micro enterprises (45 per cent compared to an average of 60 per cent for all the companies surveyed in 2020). Larger companies are also more likely than smaller companies to utilise the full benefits of cloud services, such as advanced data analytics or customer relation management (CRM) tools. These tools are used to communicate with customers and streamline sales and are therefore a potentially important tool when exporting.
Cloud adoption in the Swedish business sector varies significantly between different industries. We find that it is mainly companies in Paper and pulp that use cloud services, where the share is almost 87 per cent. The industry where the second highest number of companies use cloud services is manufacture of motor vehicles, etc., where the share was just over 80 per cent. In these industries, many of the companies are multinational enterprises (MNEs) with operations around the world. Therefore, there is great potential in being able to use cloud services to facilitate the management and monitoring of operations around the world.
Our statistical analysis relies on probit and OLS regressions to examine different cloud service premiums for the probability of being an exporter, the export intensity and the number of export markets. Since the aim is to investigate whether cloud services can add a separate channel to firms’ exports, we control throughout for firm productivity. Specifically, the following relations are analysed:
- how the use of cloud services correlates with exports,
- the relationship between different types of cloud services and exports,
- differences between small and large firms with respect to the combined use of cloud services and exports.
In our analysis, we find a positive correlation between the use of cloud computing and various indicators of exports among firms. Cloud computing is positively associated with a firm being an exporter, the number of markets it exports to and export intensity. Moreover, the results suggest that micro and small firms have the most to gain from increasing their use of cloud services.
The results also indicate varied effects between different types of cloud computing:
- In terms of the likelihood of exporting, cloud services computing power (CPU), customer information management software (CRM), database services (DB) and office software, such as a word processing service or cloud spreadsheet programmes (SOFT), are the most important tools.
- For the number of export destinations, most types (except financial software) are significant. Moreover, CPU and CRM appear to be the most important tools.
- For export intensity, we find that only the use of database services (DB) is significant.
Conclusions and Policy Implications
Given the importance of cloud services for productivity and international expansion, it’s crucial that policies do not unnecessarily restrict EU companies’ access to these digital tools. And we believe that will become even more important in the age of AI!
Here’s what EU policymakers should consider:
- Reduce Frictions in Access to Cloud Services
The European Commission should aim to minimize barriers that hinder access to cloud services to boost EU competitiveness. One practical step would be to implement a data flow test for all new legislation, ensuring that regulatory measures do not inadvertently restrict cloud usage. Additionally, clearer guidance for companies on navigating complex regulations like the GDPR could help alleviate compliance burdens.
- Prioritize Digital Trade Integration with the U.S.
Digital trade relations with the U.S. are vital for the EU competitiveness, as illustrated by our study’s results. Moreover, current EU industrial policies aimed at developing local alternatives appear to have had limited success. Therefore, maintaining access to U.S. cloud services should remain a priority, including safeguarding the EU adequacy decision that facilitates EU-U.S. data transfers. Moreover, a stronger digital partnership with the U.S., with robust rules on cross-border data flows, could further support EU export performance. In that regard, the National Board of Trade will later this year outline a suggestion for how to move the EU-US digital relationship forward.
- Enhance Data Accessibility within the EU
Cloud services’ value stem from the data they manage. Therefore, improving the free flow of data within the EU’s Single Market can amplify the benefits of cloud services for exporters. Incorporating free data flow provisions in more Free Trade Agreements (FTAs) and expanding the adequacy decision to additional countries could further enhance European competitiveness.
- Design Policies with Small Businesses in Mind
We find that small businesses and startups often benefit the most from cloud services. However, they may have more limited influence on policy decisions. Designing digital and trade policies to better support these companies’ needs can prevent them from losing out in international markets. Policies that are mindful of the needs of smaller firms will ensure that the benefits of cloud adoption are widespread, bolstering the overall EU export landscape.
Read the full report here: https://www.kommerskollegium.se/en/publications/reports/2024/cloud-services-and-export-performance/