India and China may have been the favorite destinations for most corporations globalizing their service delivery, because of their large manpower, good education and low cost. But when it comes to Political and Economic (P&E) risk, both the countries stand somewhere in the middle. Risk management firm Aon’s 2006 Political & Economic Risk Map, created in conjunction with Oxford Analytica, labels both the countries as medium-risk locations in terms of P&E risk. The Philippines, which is often preferred by American companies for call-center offshoring fares even worse in terms of P&E risk. It is labeled as a medium-high risk location.

The map classifies all countries into five categories — low risk, medium-low risk, medium risk, medium-high risk and high risk, and takes into account nine specific risk areas: Economic, exchange transfer, strike/riot/civil commotion, war, terrorism, sovereign non-payment, legal and regulatory, political interference and supply-chain vulnerability. Each country has also been labeled with the kinds of P&E risk that it is associated with.

So which are the least-risk offshore locations?

By and large, the Eastern European region has been identified as the least-risk region. While three preferred offshore locations in the region — Czech republic, Hungary and Slovakia — are identified as least-risk countries, Poland is labeled as a medium-low risk location. Bulgaria, Romania and Russia are marked as medium-risk locations by Aon.

Asia, which scores heavily with offshoring consultants, because of its skills, manpower availability, and low cost, does not fare as well. While serious offshore destinations such as, Malaysia and Vietnam are labeled medium-low risk; hot favorites — India and China — are identified as medium-risk locations. The Philippines and Indonesia are marked as medium high–risk. There is not a single Asian-offshore location that is labeled as low-risk.

Latin-American locations have a fairly diversified risk portfolio. While Chile is labeled a low-risk country, Brazil is a little behind, with a medium-low risk label. While Costa Rica and Panama are identified as medium-risk regions, Argentina is a medium-high risk country. Caribbean offshore destinations such as Jamaica and Dominican Republic are marked as medium-risk locations, by the risk management firm.

In Africa — where the risk of countries varies between medium-risk and high-risk — all the known offshore locations such as French speaking Tunisia, Morocco and Mauritius are relatively low risk and all the three have been labeled medium-risk locations , the same as India and China.

Among the hopefuls who want to get onto the offshoring map, UAE scores quite well in P&E risk. In a volatile region such as Middle East, it is one of the two countries that is labeled medium-low risk. Egypt, another hopeful, is identified as a medium-high risk location, while Pakistan is labeled a high-risk country.

Interestingly, most of the tier 1offshore locations – India, China, Russia, and Mexico – are labeled medium risk locations.

While strike/riot/civil commotion, legal and regulatory issues, political interference and supply-chain vulnerability are common risks between the emerging giants such as India and China, the latter suffers from the risk of war. India, on the other hand, has risks from terrorism.

(For a list of risk profiles of all countries in AT Kearney Global Services Index 2005, click here)