Although people are the backbone of any business, they are also a key source of risk. A “people risk” is the possibility of a negative event occurring when recruiting, employing and reorganising talent that causes loss to a business. The extent of this risk can differ depending on the company and the country.

In an attempt to categorise people risk around the globe, Aon Hewitt has been ranking countries according to their people risk since 2011 in its annual ratings survey. The latest Aon People Risk Index this year has found that Asia-Pacific has the widest deviations in risk of any region worldwide.

For example, while Singapore ranked as the second-lowest people-risk city in the world, and Hong Kong the seventh lowest, there were also a number of very high-risk cities such as Chongqing, Hanoi and Phnom Penh. However, there is a lot of economic potential in these riskier cities and there is keen interest to invest in them.

“Asia-Pacific will continue to be an attractive location for business,” says Rick Payne, regional talent and rewards practice leader for Aon Hewitt in Asia-Pacific. “However, the region has the widest variance in risks related to recruitment, employment and redeployment of any region worldwide. Companies must carefully assess the risks they face in individual locations and identify the specific steps they need to take to address those risks.”

Sally Evans, Aon Hewitt’s research manager, adds says that while people risks are lower overall in developed nations, significant risks can still materialise as a result of ageing populations, uneven demographics and restrictive employee practices.

Singapore is a perfect case in point. The country has low people risk in regards to demographics, government support, education, talent development and employment practices. Despite this, however, the Singaporean government recently introduced measures to curb the influx of foreign talent which, while not affecting labour pools immediately, has the potential to harm Singapore’s ability to attract talent in the longer term.

“We anticipate Singapore may experience problems in the next few years with regard to demographics,” Evans says. “The government is tightening policies regarding the inflow of foreign talent, which will have an impact on Singapore’s ability to mitigate the risk of its ageing population and low birth rate.”

Hong Kong has slightly higher risks all round, except in demographics. However, it also has issues ahead for future workforce planning, and this is linked to the economy and fluctuating GDP growth.

Nevertheless, Hong Kong, unlike Singapore, is currently alleviating the risk of its ageing working population through pro-business immigration policies and high workforce productivity, Evans says.

“According to the People Risk Index, Hong Kong is low risk – one out of 10 – for low work productivity. In support of this, a report by the Economist Intelligence Unit rated Hong Kong as the most productive workforce in Asia in 2012,” Evans says.

On the other hand, across the border, the mainland’s tight labour market put a lot of mainland cities above the top 50 ranking in the index. There has also been a growing trend of companies shifting to inland, tier-two cities where costs are lower, but risk is higher.

“The shift inland is due to high costs in first-tier cities as well as new opportunities in these rapidly growing markets,” Evans says. “While the attraction of lower operating costs and new markets will continue to draw investors to tier-two cities, our study found significantly higher levels of people risk in these cities. We feel that people risk gives a lot of context to these lower costs.”

Janet De Silva, dean of Ivey Asia, has also witnessed this shift to secondary cities. She says these cities lack trained, informed sales and service staff and, above all, managers.

“The growing need for talented managers in China represents by far the biggest management challenge facing multinationals and locally owned businesses alike,” she says. “In a recent China Consumer Market Strategies study [conducted by Booz & Company and the American Chamber of Commerce in Shanghai], 37 per cent of multinational companies reported that recruiting talent was their single biggest operational problem in China – a bigger problem than concerns about regulations, lack of transparency or intellectual-property rights.”

To combat the constricting talent supply, De Silva says that some overseas companies in China are now opening local academies and campuses, while Chinese companies are now offering management salary packages and benefits that match or exceed those offered by multinationals.

These actions can lessen risk in the respective locations in which they are carried out. Evans says that education is also another key area where people risk can be improved. Using Hong Kong as an example, she says that the current struggle for parents to find places for their children in Hong Kong schools will have an long-term impact on the quality of “home-grown” talent entering the workforce in the future. This is also true of any developing city that does not address its education supply and people risk correctly.