Q2 2017 Supply Wisdom Monitor: Country Risk Index

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Q2 2017 Supply Wisdom Monitor: Country Risk Index

Q2 2017 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 WisdomSM framework, covering categories such as Geo-Political, Financial, Scalability, Legal, Business, Infrastructure, Macro-Economic, and Quality of Life.

Q2 2017 Highlights:

  1. China (#1) and India (#2) continue to be in the top two spots owing to massive government investment in infrastructure accompanied with stable economic growth. Well-established IT-BPM markets, maturity of vendors as well as significant cost advantage and availability of talent pool are some other additional factors.
  2. The Philippines witnessed a drop during this quarter, moving from #5 to #7, as the country faces stiff challenge due to increase in terrorist attacks; the unrest in Southern Philippines has further added to it. The crime rate also increased substantially putting the country in the list of 20 most risky countries in the world for tourists by World Economic Forum.
  3. Colombia ranks #9, declining 2 spot from the previous quarter, primarily due to the geo-political instability in the region. Several large scale protests and demonstrations were witnessed during the quarter, along with some major disaster in the form of floods and landslides. However, on a positive note, the political scenario in the country became stable after FARC (Colombia’s biggest rebel group) formally ended its existence as an armed group.


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Rank Country Overall Risk Score
Q2 2017 Q1 2017
#1
China
0 4.58 4.48

China’s economy exhibited signs of better stability due to the massive government investment in infrastructure and recovery in exports. The country also witnessed a strong trade surplus during the quarter and inflation also remained low due to reduced food prices. Proposal for a new Economic Zone near Beijing was announced during the quarter. The Chinese government also introduced various measures in order to improve business environment and attract more investment.

Geo-Political
Geo-Political Risk reported decline during the quarter due to decrease in social security risks.
Quality of Life
Quality of Life Risk decreased during the quarter primarily driven by the reduced cost of living index.
Macro-Economic
Macro-Economic Risk saw a decrease during the quarter due to the steady GDP growth and strong trade surplus.
#2
India
0 4.67 4.76

India witnessed improvement in macro-economic stability and geo-political scenario. Inflation rates plunged down to 5 year low to 2.1% in May 2017. As one of the largest IT outsourcing destinations in the world, Indian IT industry accounts for more than 60% of global IT market. However, automation and US visa policy curbs have created significant upheaval in this industry. Tech companies are amidst a massive restructuring drive and the string of layoffs might continue in the coming years.

Macro-Economic
Macro-Economic Risk reported a drop during the quarter driven by reduced volatility in currency and increase in FDI inflows.
Geo-Political
Geo-Political Risk reported decline during the quarter due to reports of fewer incidents of protests than Q1 2017.
Scalability
Scalability Risk increased during the quarter as the IT BPM industry witnessed a slowdown. Automation, US visa policy curbs and reports of layoffs have created significant upheaval in the IT industry.
#3
Hungary
0 4.92 4.92

Hungary is one of the rapidly growing IT outsourcing market in Central European region and also holds the second largest market for shared services in the Central Eastern European region aided by the highly-educated and multilingual workforce. Furthermore, a large number of IT companies in the country establish cooperation with local universities to produce IT engineers with relevant skill sets. However, key challenges such as sparsity of IT graduate pool and administrative/procedural inefficiencies persist.

Financial
Financial Risk decreased significantly during the quarter due to a drop in fuel rates and real estate purchase costs.
Geo-Political
Geo-Political Risk witnessed an increase during the quarter owing to few large scale protests and slightly severe weather conditions.

Quality of Life

Quality of Life Risk increased during the quarter driven by a surge in internet costs.
#4
Ireland
0 5.09 5.11

Ireland continued to be a preferred location for IT and financial services firms after Brexit. 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. The Irish IT sector is facing pressure as traditional services are getting replaced by new technologies including cloud, automation and big data analytics. Also, limited availability of office space and skilled labor are key challenges for businesses operating in Ireland.

Financial
Financial Risk decreased during the quarter driven by a slow salary growth for IT and BPO sectors in 2017.
Scalability
 Scalability Risk increased during the quarter owing to shortage of workforce in the country. The increase in risk rating is primary driven by slow growth rate of the outsourcing sector in Ireland.
Geo-Political
 Geo-Political Risk witnessed a minor drop during the quarter, as no major natural disasters were reported. However, problem of social unrest is persistent in Ireland.
#5
Vietnam
+1 5.18 5.22

Vietnam is one of the fastest growing economies in Asia. It remains as one of the preferred outsourcing destination owing to the competitive operating cost it offers. The government has extended its support to the industry by liberalizing the investment environment especially around technology start-ups and relaxed rules pertaining to the entry and exit of expats. However, the country faces challenges in terms of social unrest and outbreak of diseases such as Dengue and H5N1 (bird flu).

Macro-Economic
Macro-Economic Risk reported decline during the quarter driven by increase in GDP growth rate and decrease in Inflation rate.
Geo-Political
Geo-Political Risk declined as no major floods or storms were reported for the quarter.
Financial
Financial Risk increased for the quarter owing to surge in fuel prices.
#6
Mexico
0 5.22 5.32

Mexico is considered one of the most important outsourcing destinations in Latin America owing to its expanding IT market and adequate infrastructure. The country also boasts of ‘nearshore’ advantages such as time-zone alignment, proximity, business culture and affinity. Despite having a high turnout of IT professionals, the issue of talent shortage still persists in the country. The impending renegotiation of NAFTA agreement remains one of the key concerns for the economic growth of the country.

Macro-Economic
Macro-Economic Risk recorded a significant decline from the last quarter owing to lower currency fluctuation rates.
Financial
Financial Risk witnessed a notable decrease during the quarter due to the drop in salary numbers in terms of US$.
Geo-Political
Geo-Political Risk climbed up slightly during the quarter, triggered by severe rainfall in the country.
#7
Philippines
-2 5.28 5.17

Philippines witnessed increase in Geo-Political Risk owing to the terrorist attacks and effective Martial Law in parts of Philippines. The crime rate also increased substantially during the quarter. Adding to this, natural disasters in form of earthquakes and tropical storms also posed serious challenge. In terms of operational cost, rents across Metro Manila increased as demand exceeded supply. However, the labor cost remained low due to lesser average salary growth rate compared to the previous year.

Geo-Political
Geo-Political Risk reported a significant increase due to rise in the terrorist attacks and crime rates. The unrest in Southern Philippines has further added to the risk increase.
Financial
Financial Risk witnessed a decrease during the quarter due to lower average salary growth for 2017.
Macro-Economic
Macro-Economic Risk decreased during the quarter primarily driven by declined inflation rate and improved fiscal balance.
#8
Poland
+1 5.34 5.34

Poland is a prominent player in the IT BPO sector in Central and Eastern Europe. Finance and accounting, accounts receivables, multilingual contact centers are among the wide range of offerings in the BPO market. Furthermore, closer proximity and similar time zones make Poland an attractive option for nearshoring. In terms of economic performance, the country witnessed a strong GDP growth in the first quarter of 2017, following a slowdown in economic growth in 2016.

Macro-Economic
Macro-Economic Risk remained at Low. Poland’s GDP improved drastically in the first quarter of 2017, driven by an increase in consumer spending.
Scalability
Scalability Risk witnessed a marginal decline from the previous quarter due to the drop in unemployment rate.
Geo-Political
Geo-Political Risk climbed up slightly during the quarter as a result of severe weather conditions in the country.
#9
Columbia
-2 5.39 5.26

Colombia is emerging as a leading outsourcing destination in Latin America owing to its competitive workforce and a strategic location to provide regional and global services. The political scenario in the country regained stability after FARC (Colombia’s biggest rebel group) formally ended its existence as an armed group. However, the country faces key challenges such as cyber-attacks, large scale protests and natural disasters in the form of floods and landslides.

Macro-Economic
Macro-Economic Risk registered a slight drop during the quarter, primarily driven by reduction in interest rates.
Financial
Financial Risk spiraled up during the quarter driven by higher salary growth compared to the previous year.
Geo-Political
Geo-Political Risk witnessed a noteworthy increase during the quarter primarily due to the high level of risk posed by floods and large scale protests in the country.
#10
Brazil
0 5.47 5.40

Brazil’s economy showed sign of improvement from previous quarter and exceeded market expectations. However, increasing budget deficit poses a serious challenge. High social unrest is persistent in the country. Brazil declared an end to the health emergency for zika virus but death toll is in rise due to yellow fever. On a positive note, the country has the second largest number of English speakers among the major developing economies and holds good number of multilingual labor pool.

Macro-Economic
Macro-Economic Risk increased during the quarter primarily driven by increase in fiscal deficit.
Financial
Financial Risk witnessed an increase during the quarter due to rise in salary numbers in terms of US$.
Scalability
Scalability Risk witnessed a decline from the previous quarter due to the lower attrition rate.

About the Author: Supply Wisdom Analyst Team

08-29-2017|Country Risk Index0 Comments