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Philippines: Surrounded by the Clouds of Geo-Political Risk

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Philippines came to prominence as a noticeable outsourcing destination in 2001 when a US-based outsourcing center moved its operations to the country and created 8,400 jobs in the process. Since then, the Information Technology-Business Process Outsourcing (IT-BPO) industry has become an integral part of the Philippine economy with a current industrial growth rate of around 15%. Today Philippines houses more than 1,000 BPO companies with strong presence of captive centers. Its stable economic growth and government initiatives towards the development of infrastructure provide an added advantage for the investors. Philippines is successful in lowering the cost through low-priced labor, while keeping pace with changing technologies. The country also provides advantages in the form of tax breaks and low trade tariffs at a global level.

But, are these factors enough to retain Philippines as one of the top outsourcing destinations?

The answer is NO. Risks may not be what they appear to be. Philippines is yet to realize its full potential as an outsourcing destination for it faces an unending challenge in terms of Geo-Political Risk.

What is Geo-Political Risk?

When factors such as natural disasters, ethnic tensions, social unrest, terror attacks, etc. pertaining to a particular geography play a significant part in determining political development and international relations of that country or city, it is said to be geo-politically influenced. Geo-Political Risk is the risk that an investment’s returns could suffer as a result of such factors.

Geo-Political Risk faced by Philippines

For the first half of 2016, Supply Wisdom Monitor: Country Risk Index, which covers global outsourcing markets and ranks key locations based on their overall risk score, placed Philippines in the 3rd position after China and India. But, by the end of 2016, Philippines slipped to the 5th position owing to its increasing Geo-Political Risk. Being located along the ‘Ring of Fire’, the country is under constant threat of earthquakes. Adding to this, towards the end of 2016, the Philippine Drug War and the bombing at a night market in Davao City steered the world’s attention towards the rising unrest in Philippines. Then came President Rodrigo Duterte’s statement on military and economic split from the United States which jolted the IT-BPO industry. Many blasts in Central Philippines and Metro Manila also shook the country, followed by travel advisories issued by developed nations over increasing crime. The final stroke was the declaration of the Martial Law in Mindanao on May 23, 2017 for 60 days as Maute group rebels along with ISIS militants seized the Marawi city in Mindanao. Till date, death toll from the clashes has reached more than 400 and the situation seems to be far away from being under control.

Philippines will soon have to find a way to lower its increasing Geo-Political Risk in order to maintain the country’s attractiveness as one of the top outsourcing destinations.

Understanding the Geo-Political Risk is imperative in a world that has become more closely interweaved due to the rise of globalization. Knowing the Geo-Political Risk associated with a particular location helps the investor or any stakeholder with business interest, to have a holistic overview of the location. It also helps the firms operating in the region to mitigate the risks by re-visiting and updating their business continuity planning (BCP) periodically. For business travelers, on-time information related to travel warnings and geological disasters helps them to plan their visit accordingly in a safe manner. It is always best to take informed decisions based on calculated risks.

Supply WisdomSM real-time risk assessment methodology and alerts enable businesses to understand Geo-Political risks related with any country or city and to be prepared with a mitigation plan based on Supply Wisdom’s guidance. Contact us for more information or to get started with a free trial.