The low-cost advantage of the export-oriented Filipino service economy, in particular the business process outsourcing (BPO) industry, has become under threat due to the strengthening of the country’s currency, the peso.
The Business Process Association of the Philippines (BPAP) said in a statement on December 26 that the steadily-appreciating local currency is eroding the competitiveness of the country’s fastest-growing industry.
BPAP president Benedict Hernandez said that outsourcing to the Philippines is now 30 per cent more expensive than India due to a 30-per cent difference in peso and Indian rupee exchange rates with the US dollar.
A steady inflow of foreign direct investments to the Philippines has seen the peso climb 6.5 per cent this year to 41.19 peso against the US dollar as of December 27, compared with its end-2011 level of 43.84 peso. Over the same period, the rupee has been slightly weakening, settling at 54.76 rupees on December 27 from 53.30 rupees per US dollar at the end of 2011.
Hernandez said that “our industry must be able to operate within acceptable market prices.” He added that is “becoming increasingly difficult as the peso continues to appreciate.”
Citing a recent 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.
Furthermore, a survey of BPAP members on the impact of the strengthening peso revealed that 46.7 per cent of respondents said it had been more difficult to hit their respective revenue targets. They also said they had lost some business to other destinations (40 per cent) or cancelled expansion plans (40 per cent).
The Philippines BPO industry ended 2011 with 630,000 direct employees and $11 billion in revenue, the third-largest dollar earner for the country behind product exports and remittances from overseas Filipino workers, contributing about 5 per cent to the economy’s gross domestic product. The industry aims to have 1.3 million direct employees and $25 billion in revenue by 2016.