As Data Center Nearshoring Heats Up, Where Will Your Data Lie?

Latin America is expected to see a boom in data center construction over the next two years, which may lead to American firms choosing co-locations in Mexico and other Latin American nations due to a lack of remaining space in American data centers. However, the issue of data sovereignty may prove thorny.

Market research firm datacenterHawk has indicated in a recent report that the Latin American data center industry is currently experiencing a surge in growth largely due to technology adoption and data center investment.

The firm noted that there is just a 2.88% vacancy rate in US data centers, meaning there’s virtually no room left for anyone looking for co-location. And while data center construction continues at a rapid pace, it is hamstrung by supply chain shortages, where everything from servers to locked doors are scarce. If there are not enough data centers in the US due to material shortages, but there is data center capacity in other countries, this could initiate a rise in what is known as “nearshoring.”

What is Data Center Nearshoring?

Nearshoring can best be described as offshoring to a relatively close location. If a US company placing a business office in India can be defined as offshoring, then placing an office in Mexico qualifies as nearshoring.

Related:5 Factors to Consider When Selecting a Data Center Location

Popular Nearshoring Locations

Latin America has not exactly been a hotbed of data center activity, but that is projected to change. “Post-pandemic, Latin America is expected to see the highest global growth in technology adoption. This is expected to drive a regional 6X MW demand for colocation in key Latin American markets such as Mexico, Brazil, Chile, and Colombia over the next decade,” the report said.

The report estimates that the top three hyperscalers (Google, Facebook, AWS) will each deploy an additional 500 MW by 2031 in key markets, accounting for close to 70% of the newly deployed colocation capacity in the region, which includes Mexico, Colombia, and Brazil. There has been quite a bit of activity in recent years, notes Arizton Analysis and Research. In September 2021, AWS announced plans to launch its third edge location facility in Fortaleza, Brazil. In March 2021, Microsoft announced new availability zones in São Paulo as part of its “More Brazil” plan.  And Colombia has around 11 submarine cables connecting the remainder of Latin American countries and the US.

What Are the Benefits of Data Center Nearshoring?

Because Latin America is a new markets, data center design has taken a leap forward from the more traditional designs used in the US. Research and Markets notes that telecommunication suppliers are increasingly inclined to adopt modular models in Latin America. Modular data centers are built like Lego blocks, with new capacity brought online with each module. This is in contrast to the traditional data center building method of one giant center. Can start small and grow your infrastructure as needed. And the benefit is energy efficiency. Energy to power a modular information center is about 30% less than traditional brick-and-mortar facilities, according to Research and Markets.  Lower operating expenses should translate to a savings for customers, at least in theory.

Related:Colocation Data Center vs. Private Data Center: Which Is Right for You?

The move toward nearshoring will be driven by availability, datacenterHawk notes. If there is no room in American data centers, then customers will look elsewhere. The Internet has rendered the world essentially borderless anyway, and putting your equipment in a Mexican co-location center should not be much different than putting it in a Texas-based co-location center.

While the data center market of Central America is still taking shape, datacenterHawk expects it will be less expensive to operate at those locations than in American locations. Land, power, and water are expected to be cheaper than in the United States, although that has not been borne out yet.

The other benefit is that it puts equipment in new markets where American firms might want to expand. It would make sense for a firm looking to expand its business in Mexico, Brazil, Colombia, and other Latin American nations to put data centers in those countries.

What Are the Potential Risks of Data Center Nearshoring?

On a more mundane level, these emerging nations don’t quite have the infrastructure available to the US market. Power is less stable particularly outside of the major cities, as is water, and you need plenty of both to run a data center with guaranteed uptime.

Another major issue is that. The report noted data sovereignty issues for other parts of the world, especially Europe’s strict GDPR rules, but the US has lagged behind in such policy.

Individual states, most notably California, have passed similar data privacy protection laws modeled after GDPR, but a federal policy remains elusive. Other states are coming along with their own privacy laws, but nobody wants to deal with 50 different privacy rules for each state. Something is needed on a federal level.

However, as Anthony Cammarano, global vice president of security, privacy & strategy at data protection firm Protegrity notes, if you're a multinational enterprise, you’re doing business in the Americas, Europe, in Asia and possibly South America already.

“I'm dealing with upwards of 30, 40, 50 different [privacy laws] anyway,” he said. “For the time being, I don't see a global privacy framework anytime soon, let alone a US national but in my opinion, we definitely need a US national [framework].”

For the time being, he uses GDPR as his formal guidance in dealing with Latin America, even though it is a European law, because it has been the basis and the standard that most companies have relied upon up to now.

“I think in the context of what can and can't move strictly speaking, you're going to want to identify what is the PII and probably use some frameworks that are out there for us today. I'll always go back to GDPR being a big one,” he said.

After that, what should be your first guiding principle is can this data even go into the cloud, even if it’s staying within the confines of the originating nation. And migrating to the cloud is no time to be sloppy, Cammarano warns.

“I think what we're seeing is that companies who choose to do the least amount possible are now finding themselves in situations where they're either getting fined, or they're having to rework their entire infrastructure, their data flows, their app stacks. And so if you if you if you can look at that from the beginning at the level of the privacy and actually remove the privacy in a way that you're still operationalized you're still efficient, you can still move data to where you want it to be,” he said.

How AI Can Help

AI can help in multiple ways, starting with being your chief assistant, said Nir Kaldero, chief data, analytics, & AI officer at Neoris, a global digital accelerator. The experience came from firms hit with big fines by the European Union for moving PII data from Europe to the US, such as the $4 billion hit to Google.

“AI now knows how to classify PII versus non-PII data, so the cloud providers already know that they have an underlying model they can use,” he said. “So behind the scenes, they know that they have models that basically can tell them okay, this data is PII data, don't take it out from the European Union. And so the same type of method can happen between US and Mexico.”

There’s another aspect to international data governance and that is the rise of AI. Kaladhar Voruganti, senior technologist at data center giant Equinix, said AI is in some ways making companies deployed globally because they have to process certain type of data in a certain region.

“People are not going to build AI models from scratch. They will want to basically get models and data from outside that they use as a starting point and then they actually build on top of that. So you need to know the lineage of that information. You need to know exactly who created that model. What data did it use, where was it created, all of that,” he said.

AI and GDPR may seem like strange bedfellows, but it’s a more viable alternative than waiting for the federal government to get around to making data sovereignty regulation, and when it does finally come up with some regulation, following the GDPR lead may give you a leg up.

What’s the Future of the Nearshore Data Center Industry?

Kaldero said it’s important to get your ducks in a row regarding Mexico anyway, because many US companies are moving their offshore India operation into Mexico. Companies are building a lot of what he called AI factories in Latin America. The incentive to move from India is both driven by latency, since Mexico is much closer than India, and time zones. The US and Mexico share time zones while India is 18 hours ahead of the US.

“Mexico is growing by the day, and although I still believe that Fortune 500 companies do not really use nearshoring now, I believe that this trend will massively change. So data will be flowing from the US to Mexico whether we want or don't want. It's basically the nearshoring is now the only viable alternative for US companies after what happened with India in the pandemic,” he said.

The future of nearshoring is yet to be determined, but one thing is clear, it is going to happen.