Location Risk Monitoring

Q1 2017, Supply Wisdom Monitor: Country Risk Index

Written by Swathi Sarma

Q1 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.

Q1 2017 Highlights:

  1. China (#1) and India (#2) continue to be in the top two spots. Low cost advantage accompanied with steady economic growth and expansion in infrastructure abetted these nations to dominate the global IT-BPM market. Government initiatives and reforms also played a vital role.
  2. The Philippines stayed in its position of #5 successively for this quarter, owing to further decrease in Macro-Economic Risk as a result of surplus in the Government budget. FDI also witnessed a significant growth during the quarter. Yet, natural disasters remains to pose a key challenge with major cases of earthquakes, storms, floods and landslides reported during the quarter.
  3. Mexico again witnessed a drop during this quarter, moving from #6 to #7, as the Macro-Economic Risk further increased primarily driven by the high inflation rate, which reached to a near eight-year high during the quarter. The availability of skilled talent pool along with rising corruption and cybercrime also poses a serious challenge.

Click on any country for more information.

+ Moved up – Moved down
Rank Country Overall Risk Score
Q4 2017 Q1 2017
0 4.53 4.42

Infrastructure continues to be the major driving force for China’s economic growth. 10 High-Tech Zones and 7 Free Trade Zones to be developed for promoting ease of doing businesses through fewer regulations and attractive benefits. However, China’s new Cyber Security Law which is set to take effect on June 1, 2017, further tighten the data security regulations with stringent procedures. Air pollution remained a major cause of concern with more than 70 cities recorded alarming levels of pollution.

Geo-Political Risk declined during the quarter driven by political stability with no serious threats anticipated for businesses. Also, during the quarter no major natural disaster or terror attack was reported.
Infrastructure Risk decreased due to fewer power cuts; which was triggered by no severe events of any natural disaster during the quarter, accompanied by surplus production.
Macro-Economic Risk saw a small decrease during the quarter due to the steady GDP growth and increase in foreign exchange reserves.
0 4.74 4.76

IT sector has grown considerably over the years in India. It generates millions of jobs every year which further has led to growth of several IT hubs in Bangalore, Delhi NCR and Hyderabad. Considered as the third largest base for tech startups in the world, it currently hosts more than 4000 startup enterprises. However, key challenges include shift to automation, increasing protectionism in major markets like US, and rising competition from China and Philippines.

Macro-Economic Risk increased during the quarter primarily owing to reduced FDI inflows and volatility in currency rates.
India’s Infrastructure Risk witnessed an decrease during the quarter driven by improvement in power scenario of the country.
Scalability Risk remained Moderate. With the US tightening norms for H-1B visas, the Indian IT firms are forced to change their fundamental strategies such as hiring, salaries, jobs etc. The companies could face disruptions in operations owing to higher costs which would eventually lead to layoffs of workforce in India.
0 5.04 5.02

While the country’s economic performance in 2016 was a four-year low and recorded a slowdown in overall investments, the ICT sector in Hungary continues to grow which is also a large contributor to the country’s overall GDP and employment. The outsourcing sector is the area with one of the highest overall performance in the economy. Application-related outsourcing is a relatively well-developed segment. However, key challenges such as shortage of skilled labor pool and bureaucratic inefficiencies persist.

Macro-Economic risk decreased during the quarter due to a drop in fiscal deficit and less volatility of currency exchange rates.
Financial Risk witnessed an increase during the quarter driven by a faster pace of rental growth rate.
Geo-Political Risk declined driven by reduced social security risk owing to less number of protests/demonstrations during the quarter.
0 5.08 5.06

Ireland continued to be a preferred location for software firms. Attractive incentives by the government, lower tax rates, and robust regulatory systems provide a better business environment in the country. After Brexit, many companies including financial institutions are considering Ireland to establish their business outside London. However, shortage of office inventory, talent pool and frequent power outages are key challenges for businesses operating Ireland.

A drop in Macro-Economic Risk dropped during the quarter driven by strong GDP growth, a surplus in fiscal and trade balance along with low currency volatility.
Geo-Political Risk witnessed a slight increase, owing to high occurrence of storms and floods in this period.
Infrastructure Risk increased marginally due to limited availability of office space and frequent power outages caused by extreme weather condition throughout the quarter in Ireland.
0 5.20 5.14

Philippines witnessed steady economic growth and surplus in the Government budget during the quarter. FDI also witnessed a significant growth during the quarter. However, the fuel prices and the water and power cost were higher from the last quarter, pressing the inflation rate in Philippines to a more than two-year high. Administrative/procedural inefficiencies continued to make doing business challenging.

Geo-Political Risk decreased as harmony and peace prevailed in the Country with no incident of ethnic tension or social unrest reported during the quarter.
Quality of Life
Quality of Life Risk witnessed minor decrease driven by the moderate climate condition making it suitable for expats to adjust easily.
Decrease in Macro-Economic Risk was triggered by budget surplus of around US$ 44.2 M in the beginning of the quarter as a result of improved revenue collection efforts and judicious spending.
+1 5.23 5.22

Despite witnessing a slow economic growth and global down turn, IT outsourcing sector continued to grow. ITO revenues improved as BSFI and human resource industries expanded their business and leveraged more IT services to serve their clients. As a promising IT offshore destination Vietnam have many advantages such as low wages for IT professionals, Japanese language experts and its proximity to Korean and Japan. However, shortage of skilled labor pool still persists as Vietnam has limited number of colleges and universities.

Macro-Economic Risk slid marginally in Q1, as forex reserves improved and currency market witnessed less volatility.
Financial Risk for the quarter expanded due to the higher office space rental growth than the previous quarter.
Infrastructure Risk decreased due to fewer power cuts; as no major events of any natural disaster were reported during the quarter.
-1 5.22 5.24

Mexico has one of the biggest IT market in Latin America and it ranks third globally for nearshoring services. It is also the second country in Latin America with huge investments on start-ups. The country boasts of a rapidly growing IT BPO sector owing to its adequate infrastructure and near shore proximity. However, the quality of skilled talent pool available in the country persists to be an area of concern to IT companies in Mexico.

Macro-Economic Risk increased during the quarter owing to rise in inflation and prime lending rate.
Financial Risk climbed up slightly due to the surge in fuel prices.
Geo-Political Risk surged during the quarter triggered by the terror attack incidents in the country.
0 5.34 5.28

Colombia has an established IT/BPO market owing to its availability of vast labor pool. The government supports the outsourcing sector by providing technical training in software and services and by offering several incentives. Nearshore proximity and cultural compatibility favor Colombia as an emerging outsourcing destination in the long run. However, the country faces key challenges such as corruption and increasing cybercrime.

Macro-Economic Risk declined during the quarter driven by improvement in trade balance and a drop in inflation rate and forex fluctuation.
Financial Risk for the quarter witnessed a decline due to the drop in rental growth rates.
Geo-Political Risk decreased slightly during the quarter as no breakout of epidemic diseases reported.
+1 5.45 5.41

Poland reported sluggish economic performance during 2016 and first quarter of 2017. However, the IT BPO industry continues to grow. The country is among favorable outsourcing destinations in Europe and is a prominent choice for outsourcing of app development. Nearshore proximity to US and similar time zones are other added advantages that the country offers.

Fiscal deficit witnessed a drop during the quarter that resulted in decline in Macro-Economic Risk.
Quality of Life
Climatic changes triggered a rise in the Quality of Life Risk as the country is facing extreme cold climatic conditions with increased occurrence of snowstorms.
Geo-Political Risk is Moderate. The country is facing a slightly volatile geo-political environment majorly due to an uptick in social unrest driven by several major strikes/demonstrations.
-1 5.35 5.41

Brazil’s BPO sector which represents a major portion of LATAM BPO market continues to grow at a consistent rate. The country boasts of a strong and vibrant IT work force ideally suited for call center support services and has the second largest number of English speakers among the major developing economies and holds good number of multilingual labor pool. However, the country faces challenges in terms of social unrest and outbreak of diseases such as zika and yellow fever.

Macro-Economic Risk recorded a significant decrease during the quarter due to improved fiscal and trade balance and drop in inflation rate.
Financial Risk increased for the quarter owing to a surge in office space rental growth rates.
Geo-Political Risk climbed up during the quarter as a result of many large scale protests & travel warnings faced by the country.
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