Why Data Sovereignty Is a Business Priority for European SMEs

Data sovereignty has shifted from a back-end concern to a front-line business issue for European businesses. As regulations evolve and customer expectations increase, businesses are under growing pressure to be transparent about where their data is stored and who has access to it.

Earlier this year, Italy’s data protection authority (Garante) imposed a €5 million fine on Luka Inc., the US-based AI chatbot Replika, for a lack of transparency and failure to clearly define data processing purposes.

The message to businesses is clear: transparency and control over data are no longer optional - they are essential. Here’s why.

‍Blurring Borders

The growing emphasis on data transparency is echoed in findings from our recent report, Data Hosting in Europe: Insights & Shift, which surveyed SMEs across the UK, Ireland, Belgium, and the Netherlands. It revealed that 57 per cent of businesses were uncertain whether their cloud providers guarantee that data is being stored within the European Union. This lack of clarity not only puts businesses at risk of non-compliance, but also jeopardizes customer trust and increases the potential for regulatory penalties.

The legal landscape further complicates matters. Since its introduction in 2018, the US Cloud Act has allowed American authorities to access data held by US companies, even if that data is stored in Europe. This has created uncertainty around how well European business data is protected when hosted by US-based providers. Reflecting these concerns, 72 per cent of SMEs surveyed expressed apprehension about storing data in the US, and 21 per cent are actively considering switching providers.

‍Stakeholder Pressure Is Mounting

As data sovereignty takes priority for European SMEs, stakeholder expectations are evolving swiftly. According to our report, 51 per cent of SMEs are now facing heightened scrutiny from customers, company directors, and partners concerning data location and security. This growing pressure further emphasises that data transparency is no longer merely a technical concern but a critical factor for building trust, ensuring compliance, and protecting reputation. The UK Information Commissioner’s Office (ICO) has reinforced this shift through recent enforcement actions, including fines targeting businesses that fail to uphold transparency, adequately safeguard personal data, and meet UK GDPR standards.

The takeaway here is simple. Successful businesses today cannot afford to treat data governance as optional. It’s now central to their long-term viability.

‍Simplifying Complexity Through Ecosystems

Rising unease around data storage is not only influencing provider preferences but also increasing demand for clearer oversight. Many SMEs still lack visibility into where their data is stored, despite growing expectations for transparency and control.

In response, more businesses are turning to integrated digital ecosystems, like team.blue, that bring together hosting, security, and productivity tools within a unified, locally managed framework. This approach gives decision makers greater control over their data and helps them navigate regional compliance needs while supporting long-term growth.

Data sovereignty is no longer just about regulatory compliance; it has become a strategic asset in a business environment where trust and transparency are vital. SMEs are increasingly aware that having clear oversight of where and how their data is stored is fundamental to long-term resilience.

European hosting solutions bring the much-needed clarity and control that businesses seek. By owning their data strategy, businesses are better equipped to meet rising customer expectations, adapt to shifting regulations, and compete on a global scale.

For European SMEs, the pressure to act is growing. Success will favour those who can demonstrate where their data resides, how it’s safeguarded, and who’s accountable. Those who cannot do this risk eroding trust and ultimately, losing ground.