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SCENARIOS-The BRIC nations:Growth and risksBY ANDREW MARSHALL, ASIA POLITICAL RISK CORRESPONDENT SINGAPORE, JUNE 10 (REUTERS) -

LEADERS OF BRAZIL, RUSSIA, INDIA AND CHINA -- THE SO-CALLED BRIC GROUP -- MEET NEXT WEEK

IN RUSSIA FOR A SUMMIT TO DISCUSS THE GLOBAL FINANCIAL CRISIS AND REFORMS TO THE

WORLD'S FINANCIAL AND TRADE INSTITUTIONS.

Wed Jun 10, 2009 7:34pm IST

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Following is a look at the economic prospects of the bloc, and the risks to optimistic

growth scenarios:

ECONOMIC OUTLOOK

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The Goldman Sachs research papers that launched the concept of the BRICs stressed

that they were not making definite predictions, but were setting out scenarios of what

could happen if the four countries realised their growth potential.

In a 2003 forecast, "Dreaming with BRICs", Goldman said the four nations' economiescould be half as big as the combined G6 -- the United States, Japan, Britain, Germany,

France and Italy -- by 2025, and could overtake the G6 by 2039. It said China could

become the world's largest economy by 2041.

Goldman says that since 2003, combined BRIC performance has exceeded even its most

optimistic scenario. Jim O'Neill, global head of economic research at Goldman Sachs,

says China may now take the number one spot as early as 2027, with the BRIC bloc

overtaking the G6 within the next 20 years.

"On the contrary to the rather pitifully thought out views by some a few months ago that

the BRIC 'dream' could be shattered by the crisis, their relative rise appears to be

stronger," he said.

Goldman now predicts growth rates between 2011 and 2050 of 4.3 percent a year for

Brazil, 5.2 percent for China, 6.3 percent for India and 2.8 percent for Russia.

Most analysts agree that the figures provide a relatively conservative estimate of the

growth potential of the BRICs. The key issue is whether they can live up to this potential,

or whether they will be derailed by some of the following factors.

POLITICAL RISK

Perhaps the biggest risk to the growth scenario is that political change or geopolitical

conflict undermines the growth prospects of one or more of the BRICs. Multi-decade

forecasts are notoriously unreliable, particularly when it comes to politics.

"The BRIC story has one fundamental flaw," wrote Eurasia Group's Ian Bremmer and

Preston Keat in their 2009 book on political risk, 'The Fat Tail'.

"To combine so many complex variables into such a long-range forecast (Goldman) had

to make several questionable assumptions. The largest is that the governments of these

four countries would exist in pretty much the same form for the following 47 years."

Rapid growth often leads to increasing income inequality within a country. This could

spark social unrest and divisive internal conflicts, particularly in India and China.

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China also faces the possibility that growing affluence leads to popular pressure for

democratic reforms, possibly miring the country in a lengthy and even violent political

conflict.

For Russia, there is deep uncertainty about what would happen if Prime MinisterVladimir Putin was to lose his grip on power.

"The nature of any political system that concentrates as much power in a single

individual is that it is vulnerable to an unquantifiable level of risk from entirely

unexpected events -- including mortality," Goldman wrote in a 2007 report.

The prospect of one or more BRIC nations being involved in a potentially devastating

war cannot be ruled out -- a particular risk for India, which could face nuclear conflict

with Pakistan.

ENVIRONMENTAL CONSTRAINTS

Environmental degradation is potentially a critical risk to the economic rise of the BRIC

nations. Global warming could have a grave impact on rural incomes, particularly in

India, Brazil and China. Urbanisation, industrialisation and intensive agriculture will put

huge pressure on each country's environment.

Many of their major cities, such as Shanghai, Mumbai, Rio de Janeiro and St Petersburg,

are vulnerable to rising sea levels. Nearly a quarter of the population of the BRIC

countries lives near the coast. And all have significant agricultural sectors.

Even if the BRIC nations avoid catastrophe, they may find themselves bound by

environmental pacts which limit their growth.

RESOURCE ISSUES

Brazil and Russia are resource-rich commodity exporters, but China and India depend

upon imports to fuel their growth. If growing shortages and competition for resources

drive up commodity prices, their growth models will be undermined.

Conversely, if technological advances reduce dependence on conventional energy sources

and/or commodities, Russia and Brazil will face reduced prospects for growth.

DEMOGRAPHICS

India has robust population growth, while the population of Russia is in decline. Brazil

and China are forecast to face declining populations in coming decades -- in China's case

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partly due to the 'one family one child' policy. Population decline and ageing could be a

significant constraint particularly for Russia and China, though China could remedy this

by relaxing the rules.

STRUCTURAL CONSTRAINTS

All the BRIC economies have structural issues that need to be addressed. Brazil saves

and invests too little. India needs significant economic reforms. And each country needs

to ensure it invests enough in infrastructure to maintain growth.

GENERAL UNCERTAINTY

The longer the forecast horizon, the more uncertain it is.

"The fundamental problem with 50-year political predictions is that virtually no one gets

them right," say Bremmer and Keat of Eurasia Group. "We simply cannot know how

leaders in Brazil, Russia, India and China will define their political and economic

interests half a century from now."

LONDON (10 April 2014)Aon Risk Solutions,the globalrisk managementbusiness ofAonplc

(NYSE: AON), today unveiled its 2014 Political Risk Map which identifies an increased risk

rating for all five emerging market BRICS countries.As a result, countries representing a

large share of global output experienced a broad-based increase in political risk including political

violence, government interference and sovereign non-payment risk.

Brazil'srating was downgraded; political risks have been increasing from moderate levels aseconomic weakness has increased the role of the government in the economy. This is ofparticular concern given this year's World Cup and the 2016 Olympics.

Russia'srating was downgraded largely due to recent developments with the Ukraine and theannexation of Crimea. Political strains and focus on geopolitical issues have exacerbated analready weak operating environment for business and exchange transfer risks have increasedfollowing the risk of new capital controls. Russia's economy continues to be dominated by the

government, so economic policy deadlock has brought growth to a standstill and with it anincrease in the risk of political violence.

India'srating was downgraded with legal and regulatory risks elevated by ongoing corruptionand moderately high levels of political interference. Territorial disputes, terrorism, and regionaland ethnic conflicts also contribute to elevated risks of political violence.

China'srating was downgraded to moderately high. This deterioration in political risk, includingan increase in political violence, has occurred at a time of slowing economic growth, whichsuggests that the economic policy deadlock and economic sluggishness are mutuallyreinforcing.

South Africa'srating was downgraded; despite having strong political institutions, South Africais struggling from recurrent strikes, which have become the major means of wage setting, andwhich weaken the outlook for business and raise financing costs.

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Matthew Shires, Head of Political Risk, Aon Risk Solutions,said "By using the latest data

and analysis capabilities, Aon's interactive online map provides clients with unprecedented clarity

when assessing their emerging markets political risks. By way of an example, the volatile

situation in the Ukraine began to be highlighted in our quarterly updates in mid 2013. These

quarterly updates assist our clients' in their strategic and financial decision-making. The degree

of risk and exposures vary considerably in the emerging markets and this highlights the need for

institutions to be able to generate their own high level overview of political risk and how it affects

them; for this they need access to a sophisticated risk tool such as the online map."

Leading data, analytics and insight from a leading team

The map measures political risk in 163 countries and territories, in order to help companies

assess and analyse their exposure to exchange transfer, legal and regulatory risk, political

interference, political violence, sovereign non-payment and supply chain disruption. Aon's long-

standing strength in Political Risk management is complemented by partnering with Roubini

Global Economics (RGE), an independent, global research firm founded in 2004 by renowned

economist Nouriel Roubini, in order to take advantage of RGE's unique methodology.

Paul Domjan, Managing Director, Roubini Country Insights, said "Roubini Global Economics

is proud to continue to partner with Aon to deliver this insightful approach to mapping political risk

and political violence for its clients. This year the political risks in emerging markets have risen,

particularly in the some of the largest economies. Our quarterly scores give an updated picture of

developing risks, helping investors respond quickly to deteriorating balance sheets and better

hedge their exposure. Once again, the map demonstrates the power of combining RGE's country

analysis and benchmarking with Aon's expertise in country risk."

Map overview:

Deterioration in Commonwealth of Independent States:

In early 2013, we identified some improvements in the Caucasus, Armenia and Azerbaijan, which

have continued. The rest of the region has weakened. Russia'srating was downgraded largely

due to recent developments with the Ukraine. This volatility is also affecting other former soviet

states including Armenia, Belarus, Georgia and Moldova.

Ukraine's position deteriorated throughout 2013, which culminated in a downgrade to High

risk in Q3 from Medium High. The annexation of Crimea by Russia, and government collapse

was already consistent with a country with a high political risk, but the implications of these

developments warranted a further downgrade in political risk Ukraine is now a Very High risk

country. Exchange transfer risks, which are already very high will be further increased by

restrictions in the financial system. Further, the willingness and ability of the country to settle its

debts may be affected. Meanwhile the weakening of global demand for base metals has hit

government revenues and weakened its ability to stimulate the economy. In addition touncertainty regarding the status of Crimea, Russia's desire for federalization in Ukraine, will

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provide flashpoints. RGE's baseline assumes that there will be some de-escalation of tensions

short of war, but Russia will be likely to continue to de-stabilize eastern Ukraine. The upcoming

presidential election will present a source of economic and political uncertainty.

Divergence Widening within Middle East and North and West Africa:Developments in 2013

have reinforced the relative strength of the richer oil exporting MENA countries of the Gulf

Cooperation Council (GCC). Compare this to their North African peers, all of whom have fewer

financial resources with which to manage any shocks, they all continue to have higher risk scores

across all elements of political risk tracked by Aon. The three countries upgraded in 2013's risk

map (Bahrain, Oman and UAE), maintained their more resilient and lower risk outlook, while

Jordan, where Syrian refugees have exacerbated domestic shocks, was downgraded.

Sub-Saharan Africa Divergence:There are some improvements in Sub-Saharan Africa,

notably in Ghana and Uganda which offset deterioration in South Africa and Swaziland, which

were both downgraded. Although Ghana has fiscal overspending and rising inflation, which is

weakening its macroeconomic stability, increases in revenues and investment reinforced its

already strong political institutions. Uganda continues to suffer from an overly centralized

government and significant human rights issues, the stabilization of donor finance improved its

ability and willingness to pay debts and reduced political interference.

By contrast political conditions deteriorated, particularly in Swaziland, which is being supported

by its neighbours financially, and suffered a broad-based increase in political risk and economic

strain which added to expropriation risk. South Africa, despite having strong political institutions

is struggling from recurrent strikes, which have become the major means of wage setting, and

which weaken the outlook for business.

Key flashpoint risks and trends to watch for 2014

The combination of Aon's focus on data and analytics, and RGE's unique Country Insights

methodology, has highlighted the following key points to watch in 2014:

Exchange Transfer:Economic recovery in developed markets and the beginning of interest

rate normalization has the effect of drawing capital back from emerging markets. This addspressure to countries with weak external balances. The increase in political risk in some of thelarger emerging market countries has weakened long-term capital (FDI) increasing the risk ofmeasures being introduced to retain capital that will impede transfers of funds/repatriation ofassets.

Sovereign Non-Payment:as fiscal balances weaken and default risks rise, in countries likeUkraine, along with foreign exchange pressure, corporations will see a change in certainsovereigns' willingness and ability to pay. Aon's Political Risk Map tracks both and highlightsthis weakness early.

The heavy global election cycle in 2014could exacerbate political violence, governmentintervention and policy implementation risk.

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2014 upgrades and downgrades in Country Ratings:

Upgrades (where the overall country or territory risk is rated lower than the previous year)

6 upgrades (2013: 13 upgrades): Ghana, Haiti, Laos, Philippines, Suriname, Uganda

Downgrades (where the overall country or territory risk is rated higher than the previous year)

16 downgrades (2013: 12 downgrades): Brazil, China, Eritrea, India, Jordan, Kiribati, Micronesia,

Moldova, Russia, Samoa, South Africa, Swaziland, Tonga, Tuvalu, Ukraine and Vanuatu.

Trends:

This year's 22 Country Rating changes compared to 25 in 2013. RGE's Country Insight scores

capture a series of small changes on a quarterly basis, which can give an early warning of

changes. Any changes in grade are delivered quarterly and allow the Political Risk Map to

highlight deterioration in countries, such as with the Ukraine several quarters in advance.

Risk Icons

Each country on the map is rated according to the different types of risks it faces. These risks are

indicated by the individual icons, with the first six icons driving the overall country rating, and the

three new icons included for additional information.

Brief Descriptions of Each Risk Icon

Country ratings on the map derive from six core Risk Icons, which represent insurable risk and

these are;

Exchange Transfer:The risk of being unable to make hard currency payments as a result of the

imposition of local currency controls. This risk looks at various economic factors, including

measures of capital account restrictions, the country's de-facto exchange rate regime and foreign

exchange reserves. This Risk Icon has been added to 25 countries and territories, including

Namibia, Nepal, and South Africa. This Risk Icon has been removed from 5 countries including

Bangladesh, Mongolia, and Uganda. 107 countries have this Icon.

Sovereign Non-Payment:The risk of failure of a foreign government or government entity to

honour its obligations in connection with loans or other financial commitments. This risk looks at

measures of both ability and willingness to pay, including fiscal policy, political risk and rule of

law. This Risk Icon has been added to 22 countries and territories including Gabon, Moldova and

South Africa. This Risk Icon has been removed from 4 countries, including Belarus, Malawi and

Montenegro. 108 countries have this Icon.

Political Interference:The risk of host government intervention in the economy or other policy

areas that adversely affect overseas business interests; e.g., nationalization and expropriation.

This risk is composed of various measures of social, institutional and regulatory risks. This RiskIcon has been added to 6 countries and territories including India, Mozambique, and Cape

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Verde. This Risk Icon has been removed from 2 countries: Bangladesh and Benin. 85 countries

have this Icon.

Supply Chain Disruption:The risk of disruption to the flow of goods and/or services into or out

of a country as a result of political, social, economic or environmental instability. From 2013, this

includes an assessment of domestic supply chain risk. This Risk Icon has been added to 20

countries and territories, including Bahrain, Macedonia, and Rwanda. This Risk Icon has been

removed from 4 countries including Jamaica, Montenegro, and Saudi Arabia. 116 countries have

this Icon.

Legal and Regulatory:The risk of financial or reputational loss as a result of difficulties in

complying with a host country's laws, regulations or codes. This risk comprises measures of

government effectiveness, rule of law, wider property rights and regulatory quality. This Risk Icon

has been added to 17 countries and territories including Colombia, Morocco, and Peru. This Risk

Icon has been removed from 2 countries: Thailand and Zambia. 110 countries have this Icon.

Political Violence:The risk of strikes, riots, civil commotions, sabotage, terrorism, malicious

damage, war, civil war, rebellion, revolution, insurrection, a hostile act by a belligerent power,

mutiny or a coup d'etat. Political violence is quantified using measures of political stability,

peacefulness and specific acts of violence. This Risk Icon has been added to 19 countries and

territories, including Belize, Indonesia, and Ukraine. This Risk Icon has been removed from 5

countries, including Armenia, Serbia, and Timor Leste. 104 countries have this Icon.

Risks to Doing Business:The regulatory obstacles to setting up and operating business in the

country, such as excessive procedures, the time and cost of registering a new business, dealing

with building permits, trading across borders and getting bank credit with sound business plans.

This Risk Icon has been added to 8 countries and territories, including Botswana, Pakistan, and

Senegal. This Risk Icon has been removed from 8 countries, including El Salvador, Seychelles,

and Zambia. 97 countries have this Icon.

Banking Sector Vulnerability:The risk of a country's domestic banking sector going into crisisor it not being able to support economic growth with adequate credit. This risk comprises

measures of the capitalization and strength of the banking sector, and macro-financial linkages

such as total indebtedness, trade performance and labor market rigidity. This Risk Icon has been

added to 13 countries and territories, including Botswana, Pakistan, and Senegal. This Risk Icon

has been removed from 13 countries, including Barbados, Dominican Republic, and Ghana. 108

countries have this Icon.

Risks to Fiscal Stimulus:The risk of the government not being able to stimulate the economy

due to lack of fiscal credibility, declining reserves, high debt burden or government inefficiency.

This Risk Icon has been added to 12 countries and territories, including Afghanistan, Iran, and

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Panama. This Risk Icon has been removed from 11 countries, including Burkina Faso, Iraq, and

Vietnam. 97 countries have this Icon.

The map can be accessed ataon.com/2014politicalriskmap

Notes to Editors:

About the 2014 Aon Political Risk Map

Aon measures political risk in 163 countries and territories to assess the risks associated with

exchange transfer, sovereign non-payment, political interference, supply chain disruption, legal

and regulatory regimes, political violence, ease of doing business, banking sector vulnerability

and governments' capability to provide fiscal stimulus. In each specific risk category, as well as

the overall rating, each country is rated as Low, Medium-Low, Medium, Medium-High, High or

Very High. Member countries of the European Union and the Organisation for Economic Co-

operation and Development are not rated in the 2014 map.

Country ratings reflect a combination of analysis by Aon Risk Solutions, Roubini Global

Economicsa global analysis and advisory firm and the opinions of 26 Lloyd's syndicates and

corporate insurers actively writing political risk insurance.

The online interactive map has data going back over 16 years and also measures banking sector

vulnerability, risk to fiscal stimulus and risk of doing business. By accessing Aon's Interactive

Map, institutions can track their specific political risk exposures in emerging markets, both on a

current and historical basis.

For more information, visit

In the previous issue of HR Connect, Asia Pacific, we presented the first of our three-part series

examining the People Risk encountered by companies operating in BRIC countries1.InPart 1,

we discussed the People Risk associated with recruitment in BRIC countries. This month we

present Part 2 in our series and focus on the People Risks encountered in employing and

redeploying people in BRIC.

Employment Risks

The risks of employing people in BRIC countries can best be understood by taking a close look

at employment regulations, labor relations, workforce productivity, and employee engagement

and retention in these countries.

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Among the BRIC cities analyzed in our research, the Russian cities appear to have substantially

higher employment risk when compared to the other three countries while China has the lowest

risk. Figure 1 shows the overall employment risk for the major cities in each of the BRIC

countries.

Government Effectiveness, Laws and

Regulations

Among factors affecting employment risk, government

effectiveness and the legal and regulatory system appear to

be the most important. All four countries are plagued by

corruption and opaque government policies and regulations.

Consequently, high risks in employing people in these

locations arise due to the lack of clarity and inconsistencies

in employment regulations. Often times, external counsels or consultations are required in order

for companies, especially the foreign ones, to navigate their way through myriad complicated and

inconsistent employment laws.

While ineffective government is often a norm in most developing countries, some developing

countries are making it an exception, counting on government effectiveness to improve their

overall development. Chile, for instance, has both an investor-friendly policy as well as aneffective government. The small African nation of Botswana is another example of a lowly

developed country with a less corrupt and much effective government than their neighbors.

Nationalism. Nationalist sentiment is another issue that could work against foreign companies in

BRIC, where foreign companies may find themselves at a disadvantage as compared with local

firms. Such sentiment seems stronger in Russia, which has a long history of strong nationalism

as reflected in a series of violent anti-migrants incidents in recent months. Nevertheless,

nationalist sentiment is almost as worrying in other BRIC countries. In India, for instance,

regional political power sometimes pressures companies to hire "sons of the soil" ahead of

workers from other regions. China has also witnessed public protests aimed at foreign

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businesses under the pretext of nationalism. In addition, politically-motivated interference in labor

disputes is also common in BRIC.

Overall, current evidence of corruption and government ineffectiveness is considered to be most

prevalent in the Russian cities; whereas Mumbai, Shanghai and Beijing received lower risk

ratings (see Figure 2).

Health & Safety. A poor regulatory framework and weak enforcement of the occupational health

and safety laws also leads to suboptimal protection for the workers. This consequently brings

down productivity and puts the company's reputation at risk. While labor laws in all the BRIC

countries stipulate the provision of occupational safety and health regulations, enforcement is

often patchy due to limited resources and corruption. In addition, the lack of proper infrastructure,

tools, and devices to improve workplace safety and health conditions adds to this overall risk. In

this regard, Moscow and St. Petersburg carry a higher risk rating compared to other major BRIC

cities (see Figure 3). A recent industrial accident at its largest hydroelectric power station put the

spotlight on Russia's ageing infrastructure.

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Discrimination. Workplace discrimination is another

important risk factor related to employment in BRIC.

Discrimination based on gender, race, religion, minority

status or other factors not only contributes to a reduced pool

of talent, it also increases the possibility of conflicts and

grievances in the workplace. The BRIC countries are subject

to different sorts of discrimination issues.

The public sector in India reserves a large proportion of

public service jobs (sometimes amounting to two-thirds of all such jobs) for "socially and

educationally backward communities and Scheduled Castes and Tribes." The intention is to

counteract discrimination and prejudice based on differences in caste or community. The

unintended consequence though is that such large-scale reservation of jobs can have a

damaging impact on efficiency and productivity. Within India's private sector such reservations

do not exist and companies hire staff largely based on experience and education regardless of

the person's community or caste. Nevertheless, caste and community can play a large part in

determining the experience and education of an individual.

Reports of racial, gender and religious discrimination are not uncommon in Russia, either. The

issue of minority discrimination is less alarming in China's coastal cities, but these cities face a

different type of tension between local people and migrant workers. A large part of the problem

stems from the "hukou" system, a residency registration system which ties access to various

social services, such as education and healthcare, to where an employee was born, not where

he is living and working now. A series of suicides committed by young migrant workers in a large

manufacturing plant in Shenzhen, eventually forced the company to make a host of changes,

including hefty pay rises and relocations to places closer to migrant workers' hometowns. Such

incidents have heightened the risk implications implicit in this situation.

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Crime. Another important risk factor that can affect work productivity, albeit indirectly, is the

crime situation in the city. The prevalence of high crime rates in an area increases the cost of

security needed to protect employees and property. It also affects workplace morale. Locations

with high crime rates are less likely to attract and retain talent. Among the BRIC, Brazil and

Russia present higher crime risks, while China, especially Beijing and Shanghai, offer a much

safer living environment. The high crime rates in Brazil have forced companies to invest in

additional resources for crime prevention. The presence of organized crime and corruption in

Russia has also led to increased costs and risk for firms operating there.

Employment Practices and Labor Environment

Holding the issue of laws and regulations aside for the moment, companies in BRIC also face the

risks involved in engaging and managing their workers' expectations on a sustainable basis.

Unlike some developing countries like Malaysia and Thailand, labor environment in the BRIC

countries can be quite contentious. Companies in Brazil face a higher risk of not being able to

make downward adjustments to their wages and benefits, even when facing financial difficulties

and struggling to continue as a viable business (see Figure 4). India also imposes a rigid

regulatory framework prohibiting wage reduction. The risk for major cities like Mumbai, Chennai

and Delhi is somewhat moderated through the establishment of special economic zones,

governed by a separate Special Economic Zone policy, wherein companies enjoy some

exemptions from the rigid labor laws. The laws pertaining to wage determination are less

restrictive in China and Russia, although companies in these countries are feeling the pressure

to raise salaries across the board due to workers' expectations and a tight employment market.

Labor relations. A harmonious labor relations environment facilitates better relations with

employees and thus lowers risk for employers in terms of worker productivity. Brazil and India

present a high-risk environment. Labor relations are often a political issue in both places. The

current administration in Brazil rose to power through the labor movement and so is unlikely to

affect any major reform of the labor market. The politically-motivated labor shutdowns in India

(called bandh) can be extremely disruptive to businesses, yet they often achieve little

improvement in the workers' conditions. Union movements, particularly against foreign

enterprises, are showing more signs of activism lately. Clearly, firms need to make a strong effort

to manage labor relations in each country of operation, as it can severely impact the company's

productivity and reputation. Russia is perhaps less restrictive in its labor laws. Nonetheless, the

labor environment in Russian cities is still rated at the same level of risk as Brazil or India due to

the uncertainties and inconsistencies surrounding labor law interpretations, especially when there

is interference from either government authorities or political figures.

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Staff turnover. Another key employment risk factor is the high voluntary turnover rate, especially

in India and China. Employee turnover is an important consideration in terms of employment

risks as it directly impacts work productivity and efficiency. High turnover will most certainly mean

more work disruptions, as a firm will have to spend time on training whenever a new employee

joins. High turnover will also drive up salaries as companies seek to attract and retain suitable

candidates leading to a vicious cycle of unrealistic salary growth. China and India have seen

double-digit increases in salaries in recent years due to the tight employment and talent market.

China is facing turnover rates as high as 16.7%2and salary increases due to the rise in minimum

wages over the past year amounted to as much as high as 27.9%

3

.India's IT and financialservices industries are also facing high attrition rates and the corresponding labor costs are

putting pressure on firms' profit margins.

Talent Development

The availability and quality of training and development resources in a particular city also impacts

the overall employment risk of a city. Companies operating in locations with little or no training

facilities run the risk of having to train their employees in-house. This can be difficult and

resource consuming, especially when it involves training in specialized fields. Again, the Russian

cities present a higher risk than other BRIC cities. Russia has the lowest rating in terms of local

availability of specialized research and training services, according to the World Economic

Forum's Global Competitiveness Report. India, on the other hand, has established a strong

training and development corporate culture, characterized by strong collaborations between

companies and education or training institutions. The quality of training facilities in major Chinese

cities like Beijing and Shanghai also is fast catching up with the norm in developed cities.

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Redeployment Risks

The risks of redeploying people are mainly related to the flexibility and feasibility of redeploying

staff or restructuring business operations in times of change.

Among the BRIC cities, the Chinese cities present the lowest redeployment risk, while the

Russian cities have the highest redeployment risk. Figure 6 shows the overall redeployment risk

for the major cities in each of the BRIC countries.

Many of the same factors that affect employment risk also affect redeployment risk. The risk

factors related to labor relations and rigidity of wage determination (Figure 4) are also key

determinants of redeployment risk. Restrictions on layoffs by local authorities significantly

constrain any restructuring efforts in these locations. Brazil and India are the most restrictive,

while Russia presents more uncertainty. China is generally less restrictive, but the recent global

economic crisis has prompted the local authorities to impose more regulatory requirements on

retrenchment and business relocation or liquidation. According to World Bank estimates, the cost

for redundancy is highest in China and lowest in Russia.

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Government effectiveness and corruption levels (Figure 2) also indirectly affect redeployment risk

by creating uncertainties for companies when dealing with government agencies. In this respect,

Russia presents the highest risk with its bureaucratic and inefficient civil service that is prone to

influences from parties with vested interests.

Another key factor affecting the redeployment risk in a city is the availability and quality of

training resources (Figure 5). Employee retooling is an important aspect of any redeployment

exercise. A city with limited training resources presents fewer alternatives that a company can

rely on to improve the future prospects of redundant workers. Considering the relatively

restrictive nature of the labor market in BRIC, one important step toward a more open labor

market would be to enhance the skill level of the local workforce so that they are more versatile

in this ever changing and competitive global economy.

Even though the intention of venturing into the emerging BRIC countries can be tempting, it is

critical that a company's due diligence includes an assessment of the People Risk involved,

along with the usual assessments of the political and financial risks involved. People Risk indeed

can contribute to the success or failure of a venture. Companies should therefore keep in mind

the risks of recruiting, employing and redeploying their employees when deciding on where to

invest.

Contact

Dr. Awie Foong, Associate Director of Aon Hewitt's Global Research Center, can be reached at

[email protected] Lim, Research Assistant, can be reached at

[email protected].

Coming up: In Part 3 of our series on Understanding People Risk in the BRIC Countries, we will

discuss possible solutions and recommendations that companies can undertake to better

manage their risks in recruiting, employing

Effects on The Economy

The rupee's appreciation against the dollar was seen to be beneficial to the Indian economy in some

ways, and detrimental in other ways. The rise in the value of rupee meant that inflation was curbed.

The inflation rate in India declined from 6.73 percent in February 2007 to 4.10 percent in August

2007...

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Some Perspectives

The 'trilemma' or the 'impossible trinity' as economists sometimes called the management of

exchange rate, interest rate, and inflation rate, has always posed problems for central banks the

world over; and the RBI was not an exception...