Under the impression of the rapidly changing geopolitical landscape, we wonder how this impacts tech due diligence. Here's how geopolitical factors might amplify the importance of specific aspects of IT tech due diligence:
Disruptions in Outsourced Development
Geopolitical tensions and potential trade disruptions make evaluating outsourced development vendors a crucial priority. In general, over-reliance on a single outsourced vendor can create vendor lock-in, making it difficult to switch providers or bring development in-house. This dependency can increase costs and reduce flexibility over time.
Tech due diligence must assess a company's reliance on specific vendors, particularly those located in politically sensitive regions. Investors need to understand the potential impact of disruptions on a company's operations and financial performance.
Tensions Due to Political and Cultural Differences
Communication and cultural differences can pose significant challenges in outsourced development. Language barriers or differing workplace norms may lead to misunderstandings that affect project timelines, collaboration, and overall quality. These risks are particularly pronounced during times of political tension, when perspectives on geopolitical events—and broader worldviews—may diverge. Tech due diligence should evaluate the cohesion of the development team, including both in-house and outsourced contributors, and assess its resilience under shifting geopolitical conditions.
National Security Concerns
Governments are increasingly scrutinizing foreign investments in critical technologies, such as AI, semiconductors, and telecommunications. Tech due diligence must include a thorough assessment of a company's potential national security implications, including its data handling practices, technology transfer risks, and relationships with foreign governments. This is especially important when dealing with companies that have access to sensitive user data.
In particular, concerns about technology transfer to rival nations are growing. Tech due diligence must assess the risks associated with a company's intellectual property and technology, particularly if it has partnerships or operations in countries with potential geopolitical risks.
Data Sovereignty and Localization
Where is the data stored? Is it in a politically stable nation? This is a growing concern for many investors, and tech due diligence should examine the geographic and geopolitical context of data infrastructure.
Geopolitical tensions are driving a trend towards data localization, with countries imposing stricter regulations on cross-border data flows. Tech due diligence must assess a company's compliance with data sovereignty requirements in different jurisdictions, e.g., GDPR, as well as its ability to adapt to evolving regulations.
Cyber Warfare and Espionage
The risk of cyber warfare and espionage is increasing, particularly in the tech sector. Tech due diligence must include a rigorous assessment of a company's cybersecurity posture and its ability to defend against sophisticated cyberattacks.
In essence, the geopolitical landscape adds a layer of complexity to IT tech due diligence, requiring investors to consider not only the technical and financial aspects of a company, but also its potential exposure to geopolitical risks.