Q1 2018, Supply Wisdom Monitor: Country Risk Index

///Q1 2018, Supply Wisdom Monitor: Country Risk Index
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Q1 2018, Supply Wisdom Monitor: Country Risk Index

Q1 2018 Supply Wisdom Monitor: Country Risk Index covers global outsourcing markets and ranks key locations based on the Composite Risk score, a comprehensive measure of important risk criteria. Ten major outsourcing markets have been analyzed in this index using the Supply WisdomTM framework, covering categories such as Geo-Political, Financial, Scalability, Legal, Business, Infrastructure, Macro-Economic, and Quality of Life.

Q1 2018 Highlights:

  1. Ireland continues to be in the rank #3, placed behind outsourcing giants China (#1) and India (#2). The country ranks 4th in the Euro Area and 7th in the EU in ‘Doing Business Report 2018’ by the World Bank. The government provides various incentives, lower tax rates along with good business environment that attracts more investment into the country and creates new job opportunities. Ireland also remains preferred location for IT and financial services firms in EU after Brexit.
  2. Mexico climbed up by five positions during the quarter, moving from #9 to #4, primarily driven by reduction in rental growth rate and steady currency exchange rate. Inflation rate in Mexico also eased during the period. However, the country continued to face key challenges in terms of frequent social unrests and natural disasters in the form of earthquakes.
  3. Poland ranks #8, declining 3 spot from the previous quarter due to increase in Macro-economic risk driven by trade deficit. The country also witnessed increase in the rental growth rate of office properties during the quarter. However, Poland continues to be a prominent player in the IT BPO sector in Central and Eastern Europe with wide range of service offerings such as finance and accounting and accounts receivables.


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Rank Country Overall Risk Score
Q1 2018 Q4 2017
#1
China
0 4.09 4.14

China’s government has taken several measures such as reducing its red tape and expediting approvals for businesses operating in Guangzhou and Beijing regions to improve ease of doing business in the region. Furthermore, the government has planned to reduce value-added tax rates by 1% from May 1, 2018. On the other side, risk from natural disasters and extreme weather conditions continue to pose a threat for businesses operating in the country.

Macro-Economic
Macro-Economic Risk reported a significant decrease owing to improvement in stock market performance of companies registered in Shanghai Stock Exchange.
Geo-Political
Geo-Political Risk witnessed a decrease owing to reduction in the number of epidemic cases in the country.
Quality of Life
Qulaity of Life Risk moved upward as several weather alerts were issued due to smog and cold waves in few parts of the country.
#2
India
0 4.18 4.28

As one of the world’s most preferred outsourcing destination, Indian IT BPM industry continues to grow with projected growth rate ranging between 7-9% for 2017-18. The sector has been among the key job creators in the country. In February 2018, the PM of India launched ‘Future Skills’ platform to upskill Indian IT Professionals in new tech capabilities.However on a downside, the risk of cyberattacks remains high. As per Cisco 2018 Annual Cybersecurity Report, Indian companies have lost more than US$500,000 to cyber-attacks in last 1.5 years.

Macro-Economic
Macro-Economic Risk witnessed an increase driven by reduced FDI inflows and rising fiscal deficit.
Geo-Political
Geo-Political Risk decreased owing to increase in political stability and no major natural disasters were reported during the quarter.
Infrastructure
Infrastructure Risk reported a slight drop due to less number of power cuts during the quarter.
#3
Ireland
0 4.67 4.70

Ireland is widely known for its open and business friendly environment with one of lowest corporate tax rates in Europe. Being a member of the European Union (EU) and Eurozone it has easy access to Europe’s internal market. Post Brexit, the country will be only English speaking member of the EU which has a common law and legal system, similar to United Kingdom. All these factors make Ireland an attractive destination for foreign Investments.

Financial
Financial Risk decreased during the quarter owing to slowdown in rental growth of office properties when compared to previous quarter.
Geo-Political
Geo-Political Risk dropped slightly, as no major natural disasters or events related to social unrest were reported during the quarter.
Legal
Legal/Security And Compliance Risk declined during the quarter primarily driven by an increase in the number of patents issued.
#4
Mexico
+5 4.80 4.99

Mexico, being one of the largest IT market in Latin America is growing at a consistent rate owing to its growing number of service providers and adequate IT infrastructure. Nevertheless, the quality of skilled talent pool available in the country persists to be an area of concern for IT companies operating in Mexico. Also, the geo-political stability of the region poses a challenge due to frequent earthquakes and rise in influenza cases.

Financial
Financial Risk witnessed a notable decrease during the quarter due to drop in rental growth rate of office properties.
Geo- Political
Geo-Political Risk reported a marginal decrease driven by reduced risk from floods & hurricanes during the quarter.
Macro- Economic
Macro-Economic Risk registered a significant decline during the quarter as a result of reduced inflation rate and low fluctuation of forex rate
#5
Philippines
+2 4.82 4.95

Philippines’ economic growth is projected to accelerate in 2018 due to rising domestic demand, remittances and employment in addition to infrastructure spending. The ‘Build Build Build’ infrastructure projects and comprehensive tax reforms are excellent initiatives in continuing the country’s strong performance. Net inflow of foreign direct investments (FDIs) also reached a record high of US$10.05 B in 2017 on the back of positive investor sentiment. On a downside, the country continues to face persistent terror threat and risk of natural disasters.

Macro- Economic
Macro-Economic Risk witnessed an increase driven by widening budget deficit and trade deficit.
Geo-Political
Geo-Political Risk dropped as the country’s volcanology agency lowered the alert status for the Mount Mayon volcano to Level 2.
Legal
Legal/Security And Compliance Risk declined during the quarter primarily driven by an increase in the number of patents issued.
#6
Colombia
-2 4.84 4.88

Colombia has emerged as one of the largest provider of IT services in Latin America due to its competitive workforce and nearshore proximity. The decision of Colombian government to reestablish peace talks with ‘ELN’ (the last remaining major rebel group) offers a positive geo-political outlook for the country. However, the country faces key challenges such as corruption, large scale protests and drug cartel crimes.

Financial
Financial Risk declined notably due to drop in rental growth of office properties compared to previous quarter.
Geo-Political
Geo-Political Risk decreased as no major protests or other natural disasters were witnessed during the quarter.
Macro-Economic
Macro-Economic Risk reported a significant increase due to widening of fiscal deficit and high fluctuation of forex rate.
#7
Brazil
-1 4.93 4.92

Brazil’s economy took an upturn in 2017 after a 2-year recession. The country’s GDP grew at 1% after two consecutive contractions of 3.5% in 2015 and 2016. As a result of this, International Monetary Fund had projected the Brazilian economy to grow at 2.3% and 2.5% in 2018 & 2019. However, increasing budget deficit remains a major concern. Also, the outbreak of yellow fever during the quarter poses a challenge for the country.

Geo-Political
Geo-Political Risk increased marginally due to the outbreak of yellow fever in the country.
Financial
Financial Risk decreased during the quarter primarily driven by decline in rental growth and fuel prices.
Infrastructure
Infrastructure Risk moved upward during the quarter primarily due to major power outages in the region.
#8
Poland
-3 4.96 4.89

Poland is a prominent player in BPO market in the Central and Eastern Europe (CEE) region. The country is also one of the most attractive European destinations in terms of outsourcing software development and foreign direct investment. A lot of Polish cities, including major ones such as Krakow or Katowice, are special economic zones, which grant income tax exemptions and technology incubation to attract investors.

Macro-Economic
Macro-Economic Risk witnessed an increase driven by trade deficit posted during the quarter.
Financial
Financial Risk increased due to rise in rental growth of office properties during the quarter.
Infrastructure
Infrastructure Risk reported a slight drop due to no major power cuts during the quarter.
#9
Vietnam
-1 5.12 4.98

Being one of the promising outsourcing locations in the Asia Pacific, Vietnam remains among the world’s fastest growing economies. During Q1 2018, the GDP growth rate surged to 7.38% backed by solid expansion in services sector and exports. The country has put in notable efforts to ensure that more foreign investments come into the country by revamping the legal framework governing investments and protection of intellectual property. Despite these measures, various regulatory issues and bureaucratic hurdles remains a major challenge for the investors in Vietnam.

Geo-Political
Geo-Political Risk declined due to less number of protests/strikes during the quarter and increase in political stability.
Macro-Economic
Macro-Economic Risk reported minor drop due to increase in FDI inflows into the coutnry during the quarter.
Infrastructure
Infrastructure Risk remained Moderate. Office space supply increased slightly during the quarter and new supply is expected to come into operation in 2018 mostly in parts of Hanoi city.
#10
Hungary
0 5.15 5.06

ICT (Information and Communication Technology) sector plays a vital role in Hungary’s economy. It contributes about 12% per year to the entire GDP of the country. Presence of numerous companies varying from big technology giants to shared service centers makes Hungary a major outsourcing destination in Europe. Majority of the outsourcing centers are specialize in providing IT services, followed by the financial and customer centric process oriented services. However, high salary for professionals and limited availability of workforce are areas of concern for firms operating in Hungary.

Macro-Economic
Macro-Economic Risk increased during the quarter owing to high foreign fluctuation and poor stock market performance.
Scalability
Scalability Risk increased marginally due to decrease in headcount growth rate for ITO industry.
Financial
Financial Risk decreased due to reduction in Social Security Contributions Tax.

About the Author: Supply Wisdom Locations Team

05-22-2018|Country Risk Index0 Comments