Trade in Services Report

Digital & Technology Services

6.1 Sectoral Composition & Overview

• Gross Value Added (GVA) 2022: £5.7bn which constitutes 3.4% of the Scottish Economy. By Comparison, the UK D&T Sector was worth £104.7bn in 2022, which is 4.6% of the UK economy.
• Employment 2024: 60,000 workers which is 2.2% of Scotland’s workforce. In 2022, employment was 68,000 workers which implies a productivity of £84,080.19 per worker in 2022.
• International Trade (Destination outside the UK) 2022: £1.7bn representing 29.6% of the Digital & Tech. sector’s total Gross Value Added in Scotland.
• Domestic Trade (Destination in Rest of the UK) 2022: £2.9bn representing 51.3% of the Digital & Tech. sector’s total Gross Value Added in Scotland.
• Total Exports (Destination not in Scotland) 2022: £4.7bn representing 82.35% of the Digital & Tech. sector’s total Gross Value Added in Scotland.

Source: Scottish National Accounts, UK National Accounts, BRES

Digital & Tech encompasses businesses providing IT services, software, cyber security, system design, and AI solution. For the quantitative data analysis elements of this analysis, this sector includes firms classified under the Standard Industrial Classifications (SIC) codes. Due to the rigidity of SIC codes, the quantitative elements of this sector includes video game development, classified as software development:

• 61 – Telecommunications
• 62 – Computer Services
• 63 – Information Services

The composition of the D&T sector differs from Scotland and the UK. Telecommunications and computer services compose a higher proportion of the Scottish sector, with information services composing 5.4% to the UK’s 9.6%.

Whilst the sector is also proportionally small in Scotland, 51.3% of its GVA is exported to the rest of the UK, indicating a considerable degree of integration between the two.

Source: Scottish National Accounts

Growth in the value of Scotland’s international D&T exports averaged 9.8% annually prior to the pandemic outpacing the sector’s overall average annual growth of 5.0% during the same period.

Exports to the rest of the UK grew at an average annual rate of 9.3% before the pandemic, which was also higher than the sector’s overall growth rate, reconciled with differences in sectoral composition this indicates growth in Scotland’s D&T sector has been strongly influenced by growth in the UK-wide sector.

During the pandemic the value of the sector’s international exports declined, whilst the overall sector value remained largely unaffected. By 2022, the value of both international exports and the sector as a whole had surpassed their 2019 levels.

Source: Scottish National Accounts

Source: OECD, CITP Research

Source: OECD, CITP Research

Exports from the UK’s D&T sector are highly concentrated within the top 10 destination markets for computer and information services; the European Union and United States dominate the top 10. However, their roles differ: the EU is the leading destination for computer services whilst the EU and US jointly lead in exports for information services.

Over the past decade, the D&T services trading environment, in the UK, has generally liberalised: with the UK being a more open market than the EU and the average OECD economy.

This reflects greater global openness in the UK’s post-Brexit reality. Whilst the EU enables free trade within its borders, it is relatively restrictive to external partners – especially in services.

Being outside the EU, the UK’s D&T services must deal with increased barriers with the EU despite more access to non-EU global markets. The net result is improved access to individually less valuable markets.

Despite this liberalisation, certain barriers still exist in the UK, primarily related to licensing, qualifications, and operational transparency.

In the UK’s largest trading partners – the US and EU – temporary movement of service providers and entry of foreign firms are the most prominent barriers.

* Score of 0 = Completely Open | Score of 10 = Completely Restricted

Source: OECD, CITP Research

6.2 Current and future global regulatory and non-tariff issues in the Digital Sector

6.2.1 Global regulatory and non-tariff landscape

Over the past decade, digital trade has shifted from “light touch” to rules driven by data governance regimes, platform regulation, and security centric compliance. OECD analyses that countries’ domestic rules affecting digital trade have become more restrictive and fragmented, especially in areas critical to IT services and software (communications infrastructure, data connectivity, identity, and cybersecurity). As can be seen from Figure 1, digital trade regulations differ across regions. The restrictiveness in African countries is higher than other regions while the restrictiveness in Asia Pacific is rising over the past decade.

The OECD’s Digital Services Trade Restrictiveness Index (DSTRI) quantifies these frictions and finds that meaningful regulatory reform can have large trade effects (their modelling shows a 0.05 point decrease in DSTRI could raise total trade by ~72.5%).^[43] The KPMG “Ten Key Regulatory Challenges of 2025” report underlines regulatory divergence, trusted AI/system assurance, and cyber‑resilience as top compliance priorities firms must build for (governance, controls, third‑party assurance).^[44] These help explain why firms experience rising compliance costs and divergent rulebooks across markets. OECD highlights the importance of international regulatory co‑operation to reduce fragmentation.

We can categorise cross-cutting non-tariff barriers in the Digital &Tech sector into four groups. First, data‑flow and localisation mandates remain the most structurally significant, raising integration and compliance costs for IT services, software, AI training and cloud deployment, with OECD evidence showing that digital‑trade restrictiveness is high and growing across data‑connectivity and privacy‑related policies. Second, cybersecurity testing, certification schemes, and incident‑reporting regimes are identified as increasingly functioning like licensing barriers for cross‑border digital service delivery. Third, platform‑governance obligations, including content moderation, ranking transparency, interoperability, and ad‑tech rules, further shape market access by changing how software, cloud and AI solutions reach users. Fourth, AI assurance and compliance frameworks add additional procedural and documentation burdens around transparency, safety, and governance, particularly for high‑risk applications. AI assurance and compliance frameworks introduce additional requirements at the level of service design and delivery, including documentation, transparency and governance obligations for higher-risk applications. This differs from broader data governance requirements, as it relates not only to how data is managed but also to how AI-enabled services are developed, assessed and deployed. As technology evolves, there remains the potential of great government regulation in this space in public interest, bifurcated regulatory regimes across various jurisdictions.

6.2.2 Subsector mapping

IT services: IT services face a distinctive cluster of regulatory and non‑tariff barriers that shape how providers can deliver cross‑border support, cloud‑enabled services, and managed operations. The most significant friction point is data‑flow and localisation mandates, which the OECD identifies as a major source of growing digital‑trade restrictiveness across economies, particularly in rules governing data connectivity and cross‑border transfers. These restrictions increase operational costs for IT service providers who rely on distributed systems, offshore service centres, or remote administration models. Beyond localisation, IT services are constrained by licensing and certification requirements, particularly in telecom‑adjacent or security‑sensitive areas. Additional frictions arise from expanding cybersecurity and operational‑resilience obligations. Finally, the UK’s new services‑first trade strategy, as interpreted by techUK, seeks to improve cross‑border digital‑services access and strengthen data‑flow commitments, but also introduces new economic‑security tools that could reshape market access depending on how they are applied.^[45]

Software: The software sector, covering SaaS, enterprise applications, cloud‑delivered tools, and digital platforms, faces a dense set of regulatory and non‑tariff barriers that increasingly shape market access and architecture choices. The most pervasive constraint is the growing restrictiveness of data‑connectivity and data‑governance rules, which the OECD identifies as core drivers of digital‑trade barriers in its Digital Services Trade Restrictiveness Index; these rules affect how software providers manage hosting, data residency, cross‑border transfers, and cloud failover. For software vendors operating multi‑tenant cloud services, such restrictions often force fragmented infrastructure deployments, raising operational costs and complicating regulatory compliance across jurisdictions. Platform‑governance obligations / app‑store rules represent a second major non-tariff barrier. There is a persistent rise in regulatory fragmentation around platform‑mediated digital services.^[46]

Cybersecurity: Cybersecurity solutions face a tight web of regulatory and non‑tariff barriers that function like licensing hurdles across borders: governments increasingly require security testing, encryption reviews, certification and incident‑reporting, which the American Action Forum identifies as de‑facto NTBs for exporting security tools and managed detection services, especially when requirements are duplicative or opaque.^[47] These obligations collide with cross‑border data‑flow limits on logs and telemetry that are essential for threat detection and global SOC operations. At the same time, regulatory divergence in cyber‑resilience frameworks is intensifying. KPMG flags duplicative frameworks across jurisdictions drive cost.^[48]

AI Solutions: AI solutions encounter an especially dense set of regulatory and non‑tariff barriers because they sit at the intersection of data governance, algorithmic accountability, and platform‑mediated distribution. At the core are AI assurance and documentation requirements including transparency, bias testing, risk classification, and conformity assessments. KPMG identifies as major regulatory pressures, adding substantial pre‑market compliance costs for developers and deployers of machine‑learning and generative‑AI systems. These obligations become even heavier when combined with cross‑border data‑flow restrictions, as OECD evidence shows that limitations on data connectivity significantly impede digitally delivered services. TechUK backs cross‑border flows and services‑first deals, while calling for proportionate security tools, which is important for scaling UK AI offerings abroad.^[49]

6.3 Digital and technology services roundtable summary

This roundtable convened senior leaders from firms providing a range of digital and technology services, including digital content management, digital health and online brand protection, as well as a leading trade association with over 1000 members in the sector.

The discussion focused on how Scotland could enhance its strengths in digital and technology services and become a more attractive location from which to export, through a combination of trade policy that opens access to key markets, efficient trade support and a domestic policy and operating environment that supports exporters.

6.4 SWOT analysis: Digital and technology services

6.4.1 Strengths

Cloud-Native Export Model

• Strong specialisation in cloud-based services, including platform as a service and content management systems, reduces dependence on physical infrastructure.
• Distribution through global marketplaces such as Microsoft Azure and Amazon Web Services lowers barriers to entry and allows firms to serve international clients by leveraging distributed data centre networks.
• Ability to route services between data centres provides flexibility in navigating certain regulatory and technical trade barriers.

Research and Talent Base

• Universities provide a strong research and development foundation and international talent pipeline.
• Skilled workforce positioned between high-cost US tech hubs and lower cost global competitors, combining quality and relative affordability.
• Innovation led ecosystem supported by research intensity and international collaboration.

Natural Infrastructure Advantages

• Climate, land availability and water resources create potential advantages for data centre development although electricity pricing limits the benefits from this natural infrastructure.

6.4.2 Weaknesses

Weak Domestic Anchor

• Firms can operate from almost any global location, reducing structural incentives to remain in Scotland.
• Limited domestic customer base, particularly within the public sector, weakens revenue stability and investor confidence.
• Public procurement processes described as complex, slow and costly, deterring SME participation and reducing the sector’s ability to secure “first customer” validation that foreign customers want.

Public Procurement Frictions

• Lengthy procurement cycles increase uncertainty and financing risk.
• Investors are hesitant where revenue streams depend on government contracts subject to delay.
• Missed opportunity for NHS and local authorities to act as early adopters and reference customers.

Fragmented Trade Support

• Export support perceived as dispersed across multiple platforms, creating administrative burden for SMEs.
• Trade missions sometimes offered at short notice with upfront costs, limiting participation.
• Inconsistent coordination between Scottish and UK-level initiatives.

Energy and Grid Constraints

• High electricity prices and constrained grid capacity reduce attractiveness for data centre investment.
• Energy supply competitiveness increasingly critical for AI-driven services.
• Policy constraints, including limitations on nuclear energy development, may limit long-term competitiveness in energy-intensive digital exports.

6.4.3 Opportunities

Horizon Europe Reassociation

• Reassociation offers renewed opportunities for research collaboration and innovation-led service development.
• Potential to restore momentum in international R&D partnerships in upcoming funding cycles.

Procurement Reform and Proof of Concept Models

• International examples, such as Singapore, demonstrate the value of time limited proof of concept procurement models that enable SMEs to become suppliers.
• Adoption of similar mechanisms in Scotland could accelerate revenue generation and de-risk overseas expansion.
• More effective use of approved supplier frameworks and reduced re-tendering could lower transaction costs for firms.

Standards and Digital Governance

• Opportunity to advocate for international alignment on digital standards, paperless trade and recognition of e-signatures to reduce contracting frictions.
• Potential to position Scotland as a trusted, standards-aligned digital services jurisdiction.

Strategic Positioning

• Leveraging Scotland’s research intensity, moderate cost base and cloud-native capability to position as an export platform for high-value AI and digital services.
• Strengthening global presence through coordinated participation in major international technology conferences.

6.4.4 Threats

The sector faces regulatory, geopolitical and structural risks that may erode competitiveness.

Brexit-Related Divergence

• Continued regulatory divergence from the EU increases compliance burden for firms exporting to the single market. Economic and trade data does not show foregone trade due to byzantine barriers that smaller firms simply cannot navigate.
• Dual trademark registration and regulatory duplication increase cost and complexity.
• Uncertainty regarding research collaboration and regulatory alignment has dampened innovation momentum, especially from European investors and funders.

Data Localisation and Digital Protectionism

• Data localisation requirements in markets such as India impose additional compliance costs, require local data residency and increase operational complexity.
• Environmental implications of in market hosting in carbon intensive jurisdictions may undermine sustainability credentials.

Source Code and IP Risks

• Requirements in certain jurisdictions to disclose source code or register algorithms create intellectual property risks.
• Insufficient protection in trade agreement deters market entry.
• Risk of proprietary technologies being exposed to foreign competitors.

Opaque Regulatory Environments

• Non transparent standards approval processes and inconsistent enforcement in some markets create operational uncertainty.
• Barriers such as local language filings, notarisation requirements and platform-specific compliance obligations increase cost and delay.

Global Competition for Data Infrastructure

• Other jurisdictions with lower energy costs and more supportive infrastructure policies may attract export-oriented firms away from Scotland.
• Reshoring pressures and digital sovereignty trends may reduce openness to cross-border service provision.

6.5 Roundtable Feedback and Policy Considerations

6.5.1 Trade Policy: Reserved to the UK Government, with a Scottish Government Advocacy Role

The Scottish Government should work closely with the Department for Business and Trade to ensure that digital trade priorities reflect the needs of Scotland-based firms.

• Advocate for strong digital trade provisions in future trade agreements that safeguard free cross-border data flows. Agreements should seek to limit or remove data-localisation requirements and resist provisions requiring disclosure of source code or proprietary algorithms as a condition of market access.
• As part of the 2026 review of the UK–EU Trade and Cooperation Agreement, encourage the UK Government to stabilise and future-proof data flows between the UK and EU, maintaining legal certainty for firms operating across both markets. More specifically, while the TCA commits both sides to allow data flows in principle, it does not grant full free data movement on its own. The EU adequacy decision for UK includes a sunset clause and hence goes through a constant cycle of review and re-adoption which does raise the risk of policy risk every few years leading to uncertainty itself being a barrier.

6.5.2 Trade Support and Market Enablement: Actions for the Scottish Government, in Partnership with DBT

Export growth in digital services depends on reducing practical regulatory friction and strengthening commercial follow-through.

• Provide bespoke market-entry guidance for jurisdictions where regulatory frameworks are opaque or discriminatory toward foreign service providers, with an initial focus on India and South Korea. Advice should cover operational risks, compliance strategies and mitigation options.
• Support firms and research institutions in leveraging the UK’s reassociation with Horizon Europe, including practical guidance on accessing EU research funding and forming cross-border consortia.
• Work with the Department for Business and Trade to streamline and consolidate trade support materials, reducing duplication and ensuring a coherent offer to Scottish firms.
• Design SME-focused trade missions with at least six months’ preparation time, upfront grants to support participation and structured post-mission follow-up programmes to convert buyer engagement into contracts.
• Strengthen on-the-ground expertise in priority markets through locally engaged staff and systematic use of the GlobalScot network to provide intelligence and commercial connections.
• Increase Scotland’s presence at major international technology conferences and trade shows, supporting greater participation by Scottish firms in global showcase events.

Domestic Competitiveness and Procurement

• Reform public procurement practices to enable Scottish digital and technology providers to access public sector contracts more easily. Creating stronger domestic reference customers will support firms to scale from Scotland and enhance their credibility in international markets.