Q2 2018, Supply Wisdom Monitor: Country Risk Index

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Q2 2018, Supply Wisdom Monitor: Country Risk Index

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

Q2 2018 Highlights:

  1. Philippines climbed up by one rank during the quarter to the 4th position. The Philippine economy continued to grow strongly, primarily driven by its resilient domestic consumption and a rapidly expanding outsourcing industry. During the quarter, Philippines National Economic and Development Authority’s Board approved 20 infrastructure projects. To boost competitiveness, the government also signed the ‘Ease of Doing Business Act’ and further eased the foreign exchange rules.
  2. Brazil slipped to the 9th rank, falling by two spots due to its depreciating currency against the US Dollar and high forex rate fluctuation. However, the country’s other economic strengths such as trade surplus and low inflation rate eased the Dollar’s negative effects. With respect to the IT-BPO market, the domestic market remained the key source of revenues with more than 60% of the labor pool located in Rio de Janeiro, Sao Paulo, Curitiba, Porto Alegre, Belo Horizonte, Recife, and the capital Brasilia.
  3. Hungary continued to hold the 10th rank, showing a similar trend as the last quarter. The country’s economic growth remained strong and unemployment rate decreased during the quarter. Despite several problematic factors for doing business such as policy instability and corruption, Hungary remained an attractive nearshoring destination in the European outsourcing market, supported by various shared service centers located in Budapest and other regional IT hubs such as Szeged, Debrecen, Miscols, Veszpre, and Pecs.


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Rank Country Overall Risk Score
Q2 2018 Q1 2018
#1
China
0 4.13 4.09

China witnessed a controlled inflation growth during the quarter, attributed to stable demand and slower monetary supply growth. The country also recorded a surge in FDI due to an increase in the number of new overseas-funded companies. Furthermore, China also simplified its business registration procedures for foreign-invested enterprises in order to attract more foreign investment. However, the risk from natural disasters in the form of floods and landslides continue to pose a challenge for businesses operating in the country.

Geo-Political
Geo-Political Risk recorded a small drop as no major floods or epidemic cases were reported during the quarter.
Financial
Financial Risk climbed up during the quarter primarily driven by a rise in salary numbers in terms of US$.
Quality of Life
Quality of Life Risk declined as the pollution index recorded a drop during the quarter.
#2
India
0 4.19 4.18

Over the years, India’s top rank as the favorite outsourcing destination in the world has been challenged by nations like the Philippines, Vietnam, Indonesia etc. However, it will be difficult for India to maintain its position owing to key challenges the IT-BPM industry has been facing such as strict visa norms by the US, automation, slowdown in hiring, and rising protectionism. Nevertheless, incentives offered by the government, and its Digital India and Startup India campaigns would help in the growth and development of the outsourcing industry by improving infrastructure and attracting more investments.

Financial
Financial Risk witnessed a notable increase during the quarter owing to rise in fuel prices and salaries. 
Geo-Political
Geo-Political Risk decreased owing to an increase in political stability and no major natural disasters were reported during the quarter.
Macro-Economic
Macro-Economic Risk reported a decline owing to an increase in foreign investments and reduced fiscal deficit.
#3
Ireland
0 4.71 4.67

Ireland’s economy is expected to remain robust during 2018 on the back of strong trade activity and increase in domestic demand. With respect to software market, Irish digital and software industry is known for its innovative and technical capabilities. The country has a significant presence of multinational foreign companies such as Microsoft, Google, Apple, and Facebook, and is dominated by small-mid size domestic players. The industry is very export-oriented which accounts for about 97% of the domestic production.

Macro-Economic
Macro-Economic Risk witnessed an increase driven by high fluctuation in the forex market.
Financial
Financial Risk declined notably due to a drop in rental growth of office properties compared to the previous quarter.
Infrastructure
Infrastructure Risk reported a slight drop as no major power cuts were reported during the quarter.
#4
Philippines
+1 4.79 4.82

The Philippine economy continues to grow strongly, with the real gross domestic product (GDP) projected to expand 6.7 percent in 2018 and 2019 by the International Monetary Fund (IMF). The economy has been relatively resilient to global economic shocks due to lower dependence on exports, relatively resilient domestic consumption, and a rapidly expanding outsourcing industry. The country also proclaims over a million jobs to be generated every year because of the government’s Build, Build, Build program. On the downside, the country continues to face persistent terror threats and risk of natural disasters.

Macro-Economic
Macro-Economic Risk dropped as the country reported a budget surplus amid strong revenue collections from income tax in March 2018.
Financial
Financial Risk witnessed an increase during the quarter due to a surge in rental growth rate.
Geo-Political
Geo-Political Risk declined as no major floods or storms were reported during the quarter.
#5
Mexico
-1 4.86 4.82

Mexico with one of the largest IT markets in Latin America houses several leading IT firms offering specialized IT service capabilities. During the quarter, the credit rating agency ‘Moody’s Investors Service’ raised Mexico’s credit outlook from ‘Negative’ to ‘Stable’ as the risks arising from the NAFTA renegotiation dwindled marginally, despite a prolonged negotiation process. However, the country faces key challenges such as cyber-attacks, large-scale protests, and surging homicide rates.

Financial
Financial Risk spiraled up during the quarter driven by higher salary numbers in terms of US$ compared to the previous year.
Geo-Political
Geo-Political Risk registered a drop as no major floods or earthquakes were reported during the quarter.
Macro-Economic
Macro-Economic Risk recorded a notable increase primarily due to high currency volatility and trade deficit posted during the quarter.
#6
Colombia
0 4.87 4.84

Colombia is one of the prominent nations for the Latin American outsourcing industry with a growing number of service providers and adequate IT infrastructure. The country also boasts of ‘nearshore’ advantages such as time-zone alignment, proximity, business culture, and affinity. However, the issue of talent shortage still persists in the country. Furthermore, key challenges such as natural disasters in the form of floods and landslides, large-scale protests, and increasing cybercrime remain.

Geo-Political
Geo-Political Risk witnessed a slight increase owing to a surge in the number of epidemic cases in the country.
Quality of Life
Quality of Life Risk marginally increased during the quarter primarily driven by the decline in safety index.
Macro-Economic
Macro-Economic Risk saw a small decrease during the quarter due to the steady GDP growth and drop in fiscal deficit.
#7
Poland
+1 5.04 4.96

Poland has the sixth-largest economy in the EU and is considered as a business-friendly country with largely sound macroeconomic policies. The Polish economy performed well during the 2014-17 period, with the real GDP growth rate generally exceeding 3%. The International Monetary Fund (IMF) predicts the country’s GDP to grow by 4.1% in 2018 and 3.5% in 2019. Closer proximity and similar time zones make Poland a prominent player for nearshoring in the IT-BPO sector. Finance and accounting, accounts receivables, multilingual contact centers are among the wide range of offerings in the BPO market.

Macro-Economic
Macro-Economic Risk witnessed an increase driven by low FDI in-flow growth rate and high forex rate fluctuation.
Financial
Financial Risk increased during the quarter due to an increase in the rental growth rate.
Quality of Life
Quality of Life Risk declined as the cost of living index recorded a drop during the first half of 2018.
#8
Vietnam
+1 5.13 5.12

Vietnam has the potential to become the next outsourcing favorite, owing to its low-cost labor and growing pool of young working professionals. With the government releasing policies to boost technology and educational investments, continued growth of digital connectivity and market demands, the outsourcing sector continues to grow. Nevertheless, the sector is facing challenges from technological advancements like automation that can replace jobs in the future. Also, the risk from natural disasters continues to threaten business operations that do not have appropriate business continuity plans in the country.

Geo-Political
Geo-Political Risk witnessed a notable increase during the quarter due to several protests/strikes reported across the country.
Financial
Financial Risk witnessed a drop driven by the decline in rental growth rate.
Macro-Economic
Macro-Economic Risk reported a decline owing to an increase in foreign investments and forex reserves.
#9
Brazil
-2 5.15 4.93

Brazil’s economy expanded for a fourth consecutive quarter after two years of contractions; however, the weakening of Brazilian currency against the US Dollar and the political uncertainty over the presidential elections in October remain the headwinds to the economic progression of the country. On the other hand, the country also faces challenges in terms of social unrest and outbreak of diseases such as measles and yellow fever.

Macro-Economic
Macro-Economic Risk increased significantly during the quarter primarily owing to high volatility in currency exchange rates.
Financial
Financial Risk witnessed an increase during the quarter due to rise in salary numbers in terms of US$.
Geo-Political
Geo-Political Risk declined as no major floods or storms were reported for the quarter.
#10
Hungary
0 5.28 5.15

Hungary’s economy continued to grow as its GDP growth is supported by a rise in household spending and a decrease in government expenditure. Export of goods and services accounts for about 94.1% of country’s GDP. A high dependency on exports makes the Hungarian economy vulnerable towards external market shocks as such high forex fluctuation. In June 2018, the government presented 2019 budget, which includes a cut in social security charges and forecasts a reduction in both the fiscal deficit and public debt. However, on the downside, the country continues to face a persistent problem of talent crunch and high salary for professionals.

Macro-Economic
Macro-Economic Risk increased during the quarter owing to high fluctuation in the forex market and a decline in trade balance surplus.
Financial
Financial Risk witnessed an upward move primarily driven by an increase in the IT-BPO employees’ salary owing to annual salary increments.
Infrastructure
Infrastructure Risk reported a slight increase driven by an increase in power cuts owing to adverse weather during Q2 2018.

About the Author: Supply Wisdom Locations Team

08-03-2018|Country Risk Index0 Comments