Internationalization &Digitalization

Corporate internationalization is a phenomenon that we have all experienced more or less in the last 30 years. In the 80s and 90s, the SMEs of our country realized that their products were competitive and appreciated abroad, and at the same time that part of the production could be relocated to countries with lower costs.

We – as lawyers expert in international trade laws – have followed and supported this flow. We have drawn up production, supply, sales and distribution contracts, negotiated the same in different countries, with different legal systems. and more …

Since the end of the last century digitalization has had an ever wider impact, in reality it has exploded in recent years, with the affirmation of the great players of digital commerce and has acquired dramatic evidence in the last six months …

What is digitalization? On the slide you see several definitions. I can try to say that Digitalization is the transformation of analog data into digital data, and the simultaneous possibility of processing this data in huge quantities in a short time and in the absence of territorial limits with the help of increasingly automated and autonomous systems.  Digitalization has now penetrated every area of ​​the company’s life and has revolutionized:

1) the products, which can now be equipped with technologies capable of making them communicate, interact with each other and with those who use them (Internet of Things) or may have, in some cases, abilities similar to human ones (AI);

2) the sales channels (from the physical store / fair to e-commerce, mobile and social channels);

3) the process production;

4) the invention of new products and \ or their design (ideas and projects can quickly circulate around the world and be shared with a simple click).

As mentioned, digitalization is changing the company’s sales techniques. With profiling techniques, customers / prospects are identified (not only consumers, but also potential customer companies) and their preferences, habits and purchasing policies. On the basis of these data, the company then develops targeted marketing strategies for each customer segment. Digitalization intercepts customers, through websites, social networks and applications that identify and track the IP addresses, the devices used (cell phones-tablets) of real customers to offer sales of products that may be of their desire or need. It is not necessary to know the name of the potential customer, but to be able to reach him through targeted marketing activities, adequately profiled on the target audience that you want to reach and advertise.

Internationalization is today often permeated by digitalization techniques, which make operations that were previously done by intuition, more analyzable and probabilistically predictable, mitigating business risks.

As T&P, already in 2018, we realized that we had to better explore the relationship between digitalization, which is increasingly growing, and the internationalization of companies; we therefore proposed to Professor Diego Campagnolo and CUOA a research (Be International Be Digital), together with Bonucchi & Associati, to understand how Veneto companies in different sectors and in different evolutionary stages were facing these phenomena, and with respect to the issues that would have emerged to prepare us to study different evolutionary scenarios of our profession.

Here are some cases, taken from professional ideas deriving from daily practice, and from elements taken from the aforementioned research, on what is happening in the current market:

MARKETING DATA

Case1: Italian footwear company that sells B2C throughout Europe, collects – through loyalty programs or through its stores (sometimes of subsidiaries) – the data of the final consumers who purchase the products. These data are crossed with those that can be collected with the internet (reading newsletters, accessing the site and “clicks” that show interest in a given product, viewing advertising on Social Networks and subsequent clicks) and post-sales behavior (eg . the customer returns for purchases, makes complaints, requests shipping, etc.). In this way, a consumer is precisely profiled, his present behavior and a forecast of his future behavior is created. On the basis of the data collected, the company creates a marketing program that builds customer loyalty at an international level and offers services based on the needs and / or preferences expressed by the customer.

The aspect that the lawyer must protect is – in particular – compliance in the EU with the GDPR legislation (among all the EU Regulation 679/2016 or GDPR): the data must be collected and processed from the beginning in compliance with the Regulation in so that they can be lawfully used and represent an important asset of the company (the risk of non-compliance is represented not only by the potential significant sanctions, but also by the risk of blocking / impossibility of using databases created over time with expenditure of costs ).

In this context and in this context of business internationalization, attention to the applicable legislation from a personal data protection profile (European or non-European) and the role played by the various playes in the collection and treatment process (e.g. use) is fundamental. of foreign suppliers, non-EU, etc.). The data represent a value and the ownership of the same must be safeguarded.

Case2: Italian company that produces lawn tractors and lawnmowers for the European market, creates a lawnmower equipped with IOT and App which, among other things, is able to collect data relating to the size of the garden on which the customer is using the appliance, the consumption of energy to get to the garage and other elements of the machinery that moves alone in the garden to do its job. On the basis of the data collected, entered in the app – and therefore also in the manufacturer’s systems -, the customer benefits from better services, but the same data used by the company could help it to possibly offer the customer other products of its range and also, in case breach to the system, they could be used by attackers to steal data from the end customer (size of gardens, location of houses, valuable properties etc.)

The lawyer’s task is to examine that the data collection and use of the same is authorized by the purchaser of the product and that all the appropriate precautions required by the GDPR are adopted, especially in the event of a data breach.

Case3: The information and advertising totems that we see increasing in the panorama of our cities do not only perform a passive function, that is to display information or digital advertising spots that are programmed by advertising agencies, but often, thanks to various types of devices installed on the totem itself, they collect the reactions, and therefore potentially commercial data, on the people who observe the information that appears on their screens: the effectiveness of the commercial communication transmitted is then analyzed.

 The lawyer must constantly ensure that the collection of data from the totems takes place in compliance with the privacy regulations (GDPR) and in compliance with the legislation on the collection of non-personal data of the EU non-personal data (EU Regulation 2018/1807 on the free circulation of non-personal data). The manufacturer of the totems, the manufacturers of the tracking software and those who set up urban advertising systems must worry about this aspect.

INTERNATIONAL JOINT VENTURE AND DATA.

Case4: Now we examine a project of a corporate joint venture in China between an Italian cosmetics manufacturer and a Chinese distribution company. The purpose of the collaboration is the creation of a company in Shanghai owned 30% by the Italian manufacturer and 70% by the Chinese for the sale of Italian cosmetic products in the Chinese market. The agreements included the study of a specific line of cosmetics that was to be sold in a chain of stores and subsequently, due to the change of strategy of the Chinese partner, for sale via internet stores with broadcasting events.

In  the contracts that we drafted we had to protect Client’s interest in exercising broad powers of control and management of the newco, in owning the brands and in evaluating their license for use. However, alongside the normal management control, is also required the control (and use) of the DATA collected by the newco in China for marketing purposes and to provide services to local customers (and learn local sales techniques).

DIGITAL SUPPLIERS AND BUSINESS PARTNER

Case 5:  Digital experts create virtual sales structures (shops, e-sites, virtual galleries) for companies producing goods and are structured to offer the same customers digital marketing services that help plan the internationalization of sales and the management of said shops . The systems used are those that we have explained in the case of the sale of footwear.

The same suppliers offer companies (with brands that have growth potential) management systems for their online business and thus become “managers of virtual stores”.

The supplier of digital services therefore also becomes the commercial partner of the producer.

Surely in these cases it is of interest to analyze how the ownership of customer data that is collected in carrying out partnership activities is regulated.

INTERNATIONAL R&D DEVELOPMENT PLATFORMS | PROTECTION OF CONFIDENTIALITY

Case 6: With the advent of digitalization, the use of communication platforms as well as digital sharing tools for companies’ research & development programs has spread. Therefore, the confidential R&D data is on platforms that potentially allow it to be widely and rapidly disseminated. Often these programs have data segregation systems and different levels of access.

The lawyers must therefore develop confidentiality protocols for the transfer of data and supervise the related flows in order to avoid undue access. This regulation must increase exponentially if the interested parties are located in different countries, with non-homogeneous applicable laws.

NTERNATIONAL B2B RELATIONS AND VIRTUAL ARBITRATION

Case 7: An Italian company producing plastic container blow molding machines supplies a machine to a Russian company. The Italian company is able, remotely, to control the functions and settings of the machinery sold. However, the blow molding machine does not provide the performance requested by the customer.

The law applicable to the contract is Swedish law. The result was a dispute pending before the Arbitration Chamber of the Stockholm Chamber of Commerce (SCC), which took place via videoconference. The data collected remotely were essential to evaluate if the machine worked and to have evidence to contrast with the Russians (also to understand that it was necessary to compromise …)

CROWDFUNDING EQUITY AND INTERNALIZATION

Case 8: Digitalization affects the capital market; as is well known, it is possible to raise equity (social capital) for innovative SMEs also by convincing private investors to pay new funds to companies through issues held on digital platforms (CROWDFUNDING EQUITY) authorized for this by CONSOB. Due to the joint application of EU and Italian laws, these fundraising campaigns have a theoretical maximum limit of 8 million euros

The investor who buys the capital issued as a result of these issues now enjoys in Italy tax benefits (tax credit) equal to 50% of the investment. In many innovative Italian SMEs the possibility of raising such capital is linked to the possible launch of internationalization campaigns and new product development (often in this digital phase) which are rewarded by the Italian tax legislation.

ARTIFICIAL INTELLIGENCE (A.I.) A PRESENT FUTURE

Case 9: What is Artificial Intelligence? In a simple way we could define artificial intelligence as the ability of a technological system to independently solve problems or perform tasks and activities typical of the human mind and ability.

We therefore must already think of the relationship between a machine manufacturer that is able to develop ideas and projects and a company that uses this type of machine to create innovative ideas and / or models.

Who will be the owner of the invention? The owner of the Artificial Intelligence Machine or the ser of such AI Machine? This is something that must be resolved with adequate drafting of contracts and,  in any case, the issue shall be legally analyzed .

Case10:  Climate change, the reduction of spaces for cultivation, the change in consumer tastes are imposing Agritech, i.e. the use of sophisticated technologies that innovate management of cultivation. A Verona-based company is inventing and designing vertical greenhouses that, on the basis of independent calculations and evaluations managed by AI, can optimize the cultivation and harvests of food plants with very high yields and management savings even in adverse climates; the sales targets are international customers, located in markets with climatic difficulties

What does a lawyer have to do with all this?? In our opinion, among the various possible needs, in addition to knowing how to apply the normal international contractual standards, it will serve to:

– ensure that the use of Robotics or AI technologies complies with the principles applicable to the processing of personal data,

– regulate the reallocation of responsibilities between the manufacturer of the product in the event of damage to things or people, generated by such products;

– develop legal defensive strategies in case of malfunctions and cyber attacks on the machine equipped with AI, and consequent possible commission of criminal and / or illegal actions.

– ensure that the system is ethical, respecting the “Ethical guidelines for reliable artificial intelligence” published on 8 April 2019 by the European Commission’s High Level Expert Group on Artificial Intelligence (AI HLEG).

According to the Guidelines, reliable AI must be:

(1) lawful compliance with all applicable laws and regulations

(2) ethics – respectful of ethical principles and values

(3) robust both from a technical point of view and taking into account its social environment.

CONCLUSIONS

In all the cases we have described, it emerges that:

the data must be managed by people who must have know-how;

compliance with the law allows the use of know-how

knowledge and the ability to manage knowledge help to reach positions of strength in the dynamics of market power.

(this article is the wording of my speech at CUOA BUSINESS SCHOOL’s webinar in September 2020)

Published by Carlo Scarpa

lawyer, partner at Tonucci & Partners. Specialized in Commercial Contracts, JV, IP, FIDIC. Conflicts of Law and International Law. Office in Padua - Italy

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