Strong peso hits outsourcing

THE STRENGTHENING Philippine peso has dealt a serious blow to the local outsourcing sector, eroding the competitiveness of the industry, the Business Processing Association of the Philippines (BPA/P) said in a statement yesterday.

BPA/P cited a survey of 59 executives conducted from Dec. 18-21, in which almost half of respondents claimed that the strong currency had adversely affected their businesses.

Because of the strong peso, 46.7% of respondents said “it has been difficult to hit revenue targets”; 40% “lost some business to other destinations”; and 40% “have cancelled expansion plans,” BPA/P said.

Complete details of the survey were not immediately available.

“The strengthening Philippine peso is eroding the cost competitiveness of the Philippine IT-BPO industry,” said the group, which is composed of around 300 companies.

The appreciation of peso has also given India-the country’s closest rival in terms of outsourcing investments-a “meaningful” cost advantage, BPA/P President and Chief Executive Officer Benedict C. Hernandez said.

“With the 30% difference in peso and Indian rupee exchange rates with the US dollar, the cost differential has substantially widened,” the statement quoted Mr. Hernandez as saying.

“And that is much more difficult to manage,” he said.

The group, citing research by consultancy firms Everest Group and Outsource2Philippines, said India enjoyed a cost advantage of roughly 10-12% over the Philippines six months ago.

As a result of the appreciation of the peso, that advantage has doubled to 20-24%, the group said. This involves the cost of doing business in the Philippines and India, not just the value of the respective currencies, BPA/P said.

Mr. Hernandez said that while the local industry takes pride in the quality of its services, pricing should remain competitive.

“Quality of service and productivity continue to be at the core of our value proposition. But our industry must also be able to operate within acceptable market prices,” he said in the statement.

“That’s becoming increasingly difficult as the peso continues to appreciate,” he said.

So far, the local currency has appreciated by more than 6%, closing at P41.16 yesterday from its P43.80 per US dollar finish on Dec. 29, 2011.

In an e-mail to BusinessWorld yesterday, Mr. Hernandez said BPA/P remained confident that the government, including the central bank, will find ways on how to help the sector.

“We have enjoyed strong support by and collaboration with government and its agencies, including the Bangko Sentral,” he said.

“As in the past, we are confident that government will work with us in this area to maintain [the] competitiveness of our IT-BPO industry,” he added.

In the meantime, companies will do their own cost-mitigation measures, he said.

Mr. Hernandez cited cost-efficiency measures such as “capital facility efficiency” which involves increased seat utilization through improved scheduling or timing of facility expansion; “employee productivity” or programs to improve attendance, employee performance and retention; and the “reduction of other operating costs” such the use of audio-video conferences and energy conservation schemes. — Cliff Harvey C. Venzon, Businessworld