Location Risk Monitoring

Q4 2017, Supply Wisdom Monitor: Country Risk Index

Written by Swathi Sarma

Q4 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 WisdomTM framework, covering categories such as Geo-Political, Financial, Scalability, Legal, Business, Infrastructure, Macro-Economic, and Quality of Life.

Q4 2017 Highlights:

  1. Outsourcing giants China (#1) and India (#2) continue to dominate the top two spots. China had announced various measures such as temporary tax exemption for foreign firms on reinvested profits and revision of value added tax (VAT) rates to encourage more foreign investment. India also maintains its fast paced infrastructure development and witnessed scaling up of operations by several IT-BPM firms.
  2. Colombia climbed up by two positions during the quarter, moving from #6 to #4, primarily driven by improvement in fiscal balance and forex rate fluctuation. Colombian government is also taking measures to improve the quality of electricity and boost infrastructure growth. However, shortage of adequate talent pool and high crime rates poses main challenge for the country.
  3. Philippines ranks #7, declining 2 spot from the previous quarter, primarily due to weakest economic growth since the first quarter of 2017. The country also reported largest trade deficit in 2017. The country continued to face key challenges in terms of frequent social unrests and natural disasters. However on a positive note, Philippines witnessed surge in foreign direct investments (FDIs) surpassing the annual target of 2017.

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+ Moved up – Moved down
Rank Country Overall Risk Score
Q4 2017 Q3 2017
0 4.14 4.20

China carried forward its focus on improving the business environment by expanding corporate tax rate cuts for high-tech services firms nationwide in order to attract more foreign capital into its high tech services industry. Key challenges in terms of soaring cybercrime levels and risk from natural disasters prevails in the country. However, the country gained some respite from air pollution as a result of some stringent government measures to curb pollution levels.

Macro-Economic Risk reported a significant decrease owing to less volatility of currency exchange rates.
Business Risk witnessed a minor rise owing to increase in documentation requirements for import.
Infrastructure Risk remained Low. China continues its infrastructure expansion with opening of two new airports during the quarter.
0 4.28 4.34

As per the World Bank’s ‘Doing Business 2018 Report’, India registered a record jump of 30 places from 130th to 100th place in terms of ease of doing business. The Indian government is focused on introducing several reforms to cut bureaucratic red tape, reducing the number of procedures and time taken for number of processes to further improve the ease of doing business. However, risk from social unrest/strike continues to threaten the business operations that do not have appropriate business continuity plans in the country.

Business Risk reported significant decline driven by improvements in procedures to ease doing business.
Legal/Security And Compliance Risk reported a drop primarily owing to implementation of several best practices in the court structure and proceedings, case management, court automation and alternative dispute resolution.
Macro- Economic
Macro-Economic Risk witnessed a minor increase in inflation rate which reached to the highest since July of 2016 amid faster rises in cost of food and housing.
0 4.68 4.78

Ireland provides favorable laws for employers which promotes friendly business environment. Furthermore, competitive corporate tax rates also aids MNCs’ to set up their business easily and access the internal market of European Union. The country is home to over 50% of the world’s leading organizations operating in the field of BSFI. With respect to IT industry, Ireland continues to be one of the largest software exporters in Europe. Software Development, R&D, and IT Business Services are the major contributors for sector’s growth.

Macro-Economic Risk reported a drop during the quarter owing to upward GDP growth rate and expansion in FDIs.
Geo-Political Risk witnessed a drop during the quarter, as no major natural disasters or epidemic were reported.
Legal/Security And Compliance Risk moved upward as increase in time and cost to resolve commercial disputes witnessed.
+2 4.87 4.97

Colombia is a fast developing market for finance and accounting outsourcing (FAO), legal process outsourcing (LPO) and business process outsourcing (BPO) services supported by its adequate infrastructure, quality workforce & strategic location. Nevertheless, finding and hiring the right talent remains one of the major challenges for the companies operating in the country. Furthermore, natural disasters in the form of floods and landslides, drug cartel crime and increasing cybercrime pose serious cause of concern.

Macro-Economic Risk saw a drop during the quarter, primarily driven by improvement in fiscal balance and forex rate fluctuation.
Geo- Political
Geo-Political Risk decreased as no major protests or other natural disasters were witnessed during the quarter.
Business Risk moved upward owing to increase in complexity of ease of doing business and the country’s rank slipped to 59th from 53rd position.
-1 4.89 4.92

Poland continues to develop its outsourcing industry owing to its proximity with West European markets, and robust commercial and telecom infrastructure. Software Development, BPO and R&D sectors are growing at a faster pace in last few years. The government investments and creation of innovation friendly environment are the key drivers of the industry’s growth. In recent years more than 50% of start-ups have been established in the ICT sector.

Macro- Economic
Macro-Economic Risk decreased during the quarter owing to continued expansion in economy.
Business Risk increased notably during the quarter as Poland slipped by three places in ‘Doing Business Report 2018’ and ranked 27 among 190 economies.
Legal/Security And Compliance Risk moved upward as time and cost to resolve a commercial dispute has increased.
+4 4.92 5.00

Brazil’s economy continued to display signs of progression with its largest expansion since the first quarter of 2014, chiefly driven by increase in household spending. However, the Foreign Direct Investment (FDI) decreased in the country when compared to the previous quarter. High social unrest is persistent in the country. On a positive note, the country witnessed a drop in dengue, zika and chikungunya cases during the quarter.

Geo-Political Risk reported a noteworthy decline as the risk posed by flood and epidemic was lesser when compared to the previous quarter.
Legal/Security And Compliance Risk decreased during the quarter primarily driven by an increase in the number of patents issued.
Scalability Risk declined marginally during the quarter owing to the reduction in unemployment rate.
-2 4.95 4.96

Philippines’ BPO industry offers notable provider and process maturity, aided by adequate talent pool and strong government support. Recently, the government approved a new tax reform bill to make the tax system simpler; and the VAT exemption threshold has been increased for BPO firms to maintain the attractiveness of the sector in the country. However, frequent social unrest and risk of terror attack poses a serious cause of concern for the country.

Business Risk increased due to drop in country’s doing business ranking to 113th from 99th place owing to cumbersome business regulatory structures.
Legal/Security And Compliance Risk reported rise during the quarter owing to increase in time required to enforce a contract.
Infrastructure Risk remained Low due to government’s massive infrastructure program. The Asian Development Bank also increased available funding for the infrastructure-related projects.
+1 4.98 5.01

Vietnam is emerging as an attractive destination for the IT outsourcing sector. Infrastructure development has been identified as one of the top priority areas by the Vietnamese government. Special Economic Zones and Business Parks have been planned in the country to attract more investments and to support the expansion of IT outsourcing sector. However, the country faces challenges with respect to natural disasters and rising number of dengue cases.

Scalability Risk declined during the quarter as the IT BPO sector witnessed increased revenues and growing usage of new tech platforms such as cloud, big data, and analytics help in boosting the demand.
Geo- Political
Geo-Political Risk witnessed an increase due to surge in incidents of natural disasters during the quarter.
Business Risk declined primarily owing to improvement in the bankruptcy laws in order to expand access to credit.
-1 4.99 4.98

Mexico, home to several leading firms in the IT-BPO sector boasts one of the largest IT market in Latin America. Its location advantage and cultural affinity further adds to its appeal as a popular nearshore location. However, the continuing negotiation of NAFTA talks and its outcome remains one of the decisive factors for the economic growth of the country. Furthermore, high social unrest in the form of protests and a surge in homicide rates continue to hamper the geo-political stability of the region.

Financial Risk witnessed a notable increase during the quarter due to increased rental growth.
Geo- Political
Geo-Political Risk declined marginally driven by reduced risk from floods & hurricanes during the quarter.
Infrastructure Risk registered a slight drop during the quarter, primarily driven by opening of new special economic zone.
-3 5.06 5.09

Hungary is a preferred location for shared service centers as its location enables companies to have morning calls with Asian countries and afternoon calls with the USA. The climate of the country can be considered a typical continental influenced climate. Hungary provides a well-qualified workforce along with good multilingual proficiency. The ICT sector in Hungary continues to grow which is an significant contributor in country’s GDP and employment. On a flip side, businesses operating in Hungary have a high risk of cyberattacks along with higher operating costs.

Macro-Economic Risk reported a drop during the quarter as Hungary reported surplus in trade of services which also resulted in country’s current account surplus.
Geo-Political Risk witnessed a drop as no major natural disasters were reported during the quarter.
Financial Risk increased due to surge in rental growth of office properties compared to previous quarter.

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