Third Party Risk Monitoring

Supply Wisdom Monitor: Country Risk Index – What’s New?

Avatar Written by Priyanka K

FitOutsourcing Risk Indices can turn out to be great tools for risk assessment and management (at least the baby steps) and there is no dearth of them these days. Supply WisdomSM Research Division recently launched the quarterly Supply Wisdom Monitor: Country Risk Index. Read on to find out how this index represents country risk and how different this really is from what we have been seeing.

To begin with, the Supply Wisdom risk infographic itself has evolved over the last few years. The predecessor to this new index is the Region Risk Infographic covering three important regions – Asia Pacific, The Americas, and Europe, Middle East & Africa (EMEA). The older infographic covered three countries per region, with important aspects of country scalability such as the IT/BPO industry size, labor pool, employee turnover rates, and average outsourcing salaries by sectors, along with the dominant risk categories for each country during that quarter. However, since each region’s representation was released separately every month, it could have made it difficult to effectively compare between regions. The new index definitely takes care of that, without losing the important information.

The new index is released once a quarter with all the regions covered under one roof.  It covers 10 countries which are the key global outsourcing hubs, both established and emerging. There is also a clear ranking methodology that has been followed, making it exciting but at the same time raising many questions in the reader’s mind, which are discussed in the latter part of this blog. These countries have been positioned at various places on the index using the Composite Risk (CR) score, a comprehensive measure of important risk criteria and one of the most important aspects of the Supply WisdomSM framework. The CR score is arrived at by assessing eight important categories including Macro-Economic, Financial, Geo-Political, Infrastructure, Business, Legal, Scalability, and Quality of Life risks.

A glance at the new monitor will tell you that China, India, and the Philippines are the top three outsourcing countries. Not surprisingly, APAC continues to lead on the outsourcing map. But one of the first questions that could strike the reader’s mind – China ranks above India? Despite all the recent news about how Chinese policies have been a big disturbing factor for foreign companies? But as soon as you read the explanation for China in the index, you will know the reasons. So it is not just the popular news that’s driving the risk score. Other factors that have a significant say here include scalability (industry, people, and process), infrastructure, etc. There is also a mention of tier II cities emerging as business hubs. India lags behind slightly (the difference in CR score from China is only marginal) due to rising labor costs, lack of adequately skilled graduates, and the improvement required in its business atmosphere.

The index also shows how some of the European markets have come up in the last several years. There was a time when buyers of outsourcing services shied away from these markets because of the high labor costs involved. Many a times, these countries were not even an option. The index clearly reveals that that isn’t the scenario today. Countries like Ireland, Hungary, and Poland are becoming destinations of choice for clients due to benefits beyond costs that they have to offer, both BPO and IT services.

Last but not the least, there is the impressive set of countries from Latin America – Mexico, Brazil, and Colombia, that took the world by storm by providing some of the best nearshore services that the outsourcing world had experienced. They definitely have some obvious advantages such as proximity to the US market and great command over Spanish and Portuguese, but what is great about these destinations is the high resilience and growth their IT-BPO industry has shown in times of uncertainty. Be it Mexico’s struggle with high corruption levels and crime or Colombia’s long wait for peace treaties with left-wing groups such as the Revolutionary Armed Forces of Colombia (FARC) and National Liberation Army (ELN) or Brazil’s volatile macro-economic and geo-political environment, clients continue to hold positive sentiments for the services they have to offer.

Overall, monitoring the changes and rank movements of countries on this index is something to look forward to. It will be interesting to see how things change over a quarter or over the year. Will a particular country continue to struggle with the same kind of risk, say terrorism, over the next one year? Or are there chances of some new kind of risk emerging, say the risk of cybercrime or some kind of anti-outsourcing policy? It is also likely to help the viewer figure out if some of these targets should be actively monitored, especially if that is a place where they are already investing or have plans to explore. For more details on how to better monitor and address Country Risk, refer to Supply WisdomSM.