Strong peso threatens BPO sector

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07:28 PM December 26th, 2012

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By: Paolo G. Montecillo, December 26th, 2012 07:28 PM

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THE GROWTH of the local business process outsourcing (BPO) industry is under threat due to the strengthening of the peso, which has already taken away “low costs” as one of the Philippines’ biggest advantages over competitors like India and China.

In a statement this week, the Business Processing Association of the Philippines (BPAP) said that outsourcing to the Philippines is now 30 percent more expensive than India due to the strong local currency.

“With the 30-percent difference in peso and Indian rupee exchange rate with the US dollar, the cost differential has substantially widened,” BPAP president Benedict Hernandez said. “And that is much more difficult to manage.”

Hernandez is also president of the Call Center Association of the Philippines (CCAP), which groups companies that specialize in voice-based services.

Citing analysis by Everest Group and Outsource2Philippines, Hernandez said the combination of an appreciating peso and a depreciating Indian rupee had provided India with a meaningful cost advantage.

A survey of BPAP members on the impact of the strengthening peso revealed that 46.7 percent of respondents said it had been more difficult to hit their respective revenue targets.

Respondents to the survey, which was conducted last week, also said they had lost some business to other destinations (40 percent) or cancelled expansion plans (40 percent).

The industry, which contributes much to the domestic economy, ironically helped drive up the peso’s value, Hernandez said.

Southeast Asia has become a preferred destination for global portfolio investors as a result of sustained weakness in developed economies, Hernandez explained.

“Investment inflows result in increased demand for these currencies, including the Philippine peso, creating strong upward pressure on value,” he said, as he urged policymakers to act to stem the peso’s sharp climb.

“Our industry must also be able to operate within acceptable market prices. That’s becoming increasingly difficult as the peso continues to appreciate.”

Aside from the BPO industry, exporters are also hit hard by a stronger peso since they make less money in peso terms for every dollar they earn.

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