Location Risk Monitoring

Q2 2016, Supply Wisdom Monitor: Country Risk Index

Written by Sowmya MK

Q2 2016 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 analysed 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 2016 Highlights:

    1. Key sourcing markets China and India retained the #1 and #2 Ranks on the index respectively, owing to the well-developed ITO/BPO industry, mature business processes and strong government support for the technology sector.


    1. Ireland dropped by 1 spot to the #5 Rank in Q2 2016. Impact of the Brexit referendum, the upcoming 2016 Budget in October, and ongoing political uncertainties could be among the key influencing factors for the outlook of the country in the coming months.


    1. Mexico climbed 1 spot to reach Rank #6 on the index. The lower salary growth forecast for 2016 compared to the previous year as well as the weak Peso will help the country retain its cost-arbitrage and nearshore advantage.


  1. Vietnam ranks #7, dropping by 1 spot from the previous quarter. Being one of the chief emerging sourcing hubs in the APAC, change in the top leadership and the recent business-friendly initiatives by the government are likely to spur investment activity.

Click on any country for more information.

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Rank Country Overall Risk Score
Q1 2016 Q2 2016
0 4.57 4.59

China witnessed increasing criticism about its unfriendly business atmosphere, particularly towards foreign firms, due to continual cyber-security and data protection regulations and complex business procedures. Nevertheless, sourcing industry continues to get the government’s support as China is seen to be taking a number of initiatives to improve the technological environment in the country. As always, risk from natural disasters continues to threaten the business operations that do not have appropriate business continuity plans.

Increase in Financial Risk was primarily driven by the yearly salary increments (in the range of 5% to 12%) that were provided by the IT- BPO companies for the year 2016-17. Skilled professionals are said to be in particular demand with a salary growth between 8% and 15%.
Infrastructure Risk decreased due to the increase in surplus power capacity across the country.
A matured market indicated by a lower IT industry growth rate compared to previous years drove the Risk up in Q2 2016.
0 4.74 4.72

India’s IT-BPO industry boasts high provider and process maturity, aided by a large talent pool and strong government support. However, rising labor costs, social unrest and increasing vulnerability to cybercrimes are key challenges. India has registered a salary increase of 10.3% in 2016, compared to the slightly higher 10.7% witnessed in 2015. However, the average wage hike in India is significantly higher in comparison to the Asian regional average of 6.4%.

Macro-Economic Risk declined in Q2 2016 due to improvement in the country’s fiscal balance and stock market performance.
Financial Risk increased owing to the 10.3% salary increment provided for 2016-2017 by the ITeS companies. Delhi leads among key Indian cities as the highest paying location, a spot that that was held by Bangalore in 2015.
Geo-Political Risk declined due to drop in Natural Disaster Risk.
0 4.97 4.98

Factors such as heightened crime levels (especially towards foreign residents), increasing terror threats, vulnerability to natural disasters and soaring rates of cybercrime continue to be persistent in the country. However, arrival of the new government has created a positive environment in Q2 2016. Business confidence has surged, owing to expectations of announcements of investor friendly economic as well as business policies, tax reforms and social security policies in the coming months.

Macro-Economic Risk decreased due to stability that was noticed in the currency exchange rate (Philippine Peso Vs Dollar) as well as an improved fiscal balance. The country recorded its fiscal surplus after four months.
Increase in Financial Risk was attributed to a marginal rise in operational costs, driven by increased rental growth rate and capital values in commercial real estate.
Rise in Geo-Political Risk was driven by higher political instability due to the 2016 national elections, as well as a spike in the natural disaster risk caused by a series of epidemics, earthquakes and volcanic eruptions.
+1 5.08 5.06

Hungary is one of the key sourcing markets in the Central and Eastern Europe (CEE) region. Primary industries serviced in the country include BFSI, public sector and manufacturing. While multinational firms dominate the technology industry, a smaller share of Hungarian firms offers niche technology services. Application software and system infrastructure, project services and ERP are among the main offerings in Hungary’s sourcing market. To overcome lack of innovation, the country has doubled the financial aid for R&D-focused activity in the country for the period 2016-2020.

The decline in Financial Risk can be attributed to the effects of the depreciation in Hungarian Forint, as a weak local currency makes the existing salary levels more appealing in terms of US dollars.
Hungary’s Geo-Political Risk recorded an increase driven by higher Social/Security Risk during the quarter.
Increase in Legal Risk is driven by the fewer number of patent grants in Hungary indicating limited innovation and R&D activity in the country.
-1 5.05 5.16

Ireland’s sourcing appeal is buoyed by factors such as a competent business atmosphere, low corporate taxes, good English-speaking workforce, and strong client portfolio. The country’s software sector in particular, witnessed a large increase in foreign investments as well as in talent pool during 2015. However, due to the current political situation, concerns are prevalent about the potential impact of the Brexit on Ireland’s economy and business policies.

Macro-Economic Risk declined as the country’s inflation rates rebounded after 3 consecutive quarters of deflation.
Financial Risk increased mainly due to increase in operational costs – in terms of considerably higher office rental growth rate. Enquiries for prime spaces in the city center areas remained high during Q1 2016.
Geo-Political Risk increased during the quarter driven by the fears of possible centenary terror attacks by Irish republican terrorists. The Brussels terror attack also raised concerns about compromised security situation in the country.
+1 5.29 5.19

Mexico’s ITO/BPO sector has seen tremendous growth in the last decade and boasts the presence of major players like IBM, Accenture and TCS. To overcome challenges of limited human capital, various initiatives such as Mexico First and PROSOFT have been started. In June 5th 2016, 12 Mexican States held elections for governor, while the ruling Institutional Revolutionary Party (PRI) losing its governorship positions in six states. The election confirmed growing unpopularity of the current government.

Risk decrease was mainly due to lowering salary cost triggered by the depreciation in Mexican Pesos as against US Dollar in 2015. While the average industry salary increment was at 4.6%, in terms of US$, the salaries eroded by 13%.
Geo-Political Risk increased due to a number of large scale protests as well as increase in natural disaster occurrences.
Scalability Risk witnessed a decline owing to upwardly revised forecasts for the country’s sourcing market growth.
-1 5.13 5.26

Being one of the promising sourcing locations in the Asia Pacific, Vietnam’s software market is witnessing increased revenues, particularly through exports. A rise in the number and scale of firms providing sourcing services for foreign partners is also noticed. The growth is supported by a vast array of incentives by the government. However, shortage of skilled talent is a persistent issue; with an estimated skill gap of around 200,000 IT workers foreseen in 2016-2020.

Financial Risk declined for Q2 2016 and was driven by 8% salary increments for 2016, which are considerably lesser than the industry average of 11.6% that was offered in 2015.
The rise in Geo-Political Risk was driven by the change in the country’s leadership, with the appointment of Nguyễn Xuân Phúc as the new Prime Minister of Vietnam from April 2016.
Legal Risk declined, primarily due to improvements observed in the country’s intellectual property protection, owing to several new reforms that were introduced during the quarter.
0 5.39 5.40

Colombia’s sourcing industry boasts the presence of major players such as HP, Dell and Accenture and offers services ranging from contact center to application development & maintenance, finance & accounting, etc. As the industry is scaling up, issues in terms of limited talent pool, shortfall of bi-lingual and multi-lingual workforce and poor English-proficiency are cropping up. To address these concerns, the administration has rolled out several initiatives such as the National English Program of 2015-2025, the Productive Transformation Program, National Learning Service (SENA) and Vive Digital.

Macro-Economic Risk decreased due to narrowing fiscal deficit as well as lower currency and stock market fluctuations.
Similar to Mexico, Colombia’s Financial Risk decreased as the Peso that had depreciated over the last one year, aided in the cost arbitrage offered by the country. Salary cost in terms of US$ decreased in 2016.
Geo-Political Risk rose owing to the increase in social/security as well as natural disaster risks.
0 5.41 5.48

Brazil continues to be one of the preferred offshoring countries in the Americas. Software segment witnessed noteworthy growth in 2015, followed by IT services and hardware. Furthermore, during the quarter, Brazil’s business, political and economic climates witnessed slight uptick after Michel Temer assumed the position of acting President in May 2016, providing an optimistic outlook for the coming months.

Risk decreased due to improved GDP growth rate, trade balance and lower stock market fluctuations.
Financial Risk was driven by reduction in salary cost in terms of US$ in the IT-BPO sector in 2016, triggered by the depreciation of the Brazilian Real over the past year. Salary increment percentage for 2016, however, was higher than 2015.
Geo-Political Risk increased due to higher political instability, brought about by the impeachment order against former President Dilma Roussef.
0 5.52 5.49

Poland has cemented its position as one of the most important sourcing markets in Central and Eastern Europe favored by its strategic access to Western Europe and emergence of BSS (Business Services Sector) that now includes Knowledge Process Centers and Centers of Excellence for financial analysis, application development etc. A robust commercial and telecom infrastructure further aids these developments. Within Poland, Tier I sourcing markets include Krakow, Warsaw and Wroclaw. Nevertheless, scalability issues due to its small industry size and a limited technically-skilled workforce is prevalent.

Poland’s Financial Risk witnessed a decline owing to weakened zloty in 2015 that provided significant cost arbitrage with respect to salaries in terms of US$. The risk decrease is also supported by declined rents in Grade A offices in CBDs.
Scalability Risk recorded a marginal decline owing to falling unemployment level in the country.
Quality of Life
The increase in Quality of Life Risk is driven by higher hotel occupancy rates during the quarter.
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