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BPAP: A competitive peso will contribute to sustained growth in IT-BPO

(Manila, Philippines, December 26, 2012) — The strengthening Philippine peso is eroding the cost competitiveness of the Philippine IT-BPO industry, according to the Business Processing Association of the Philippines (BPAP). Citing analysis by Everest Group and Outsource2Philippines, BPAP president and CEO Benedict Hernandez said the combination of an appreciating peso and a depreciating Indian rupee has provided India with a meaningful cost advantage.

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

The Association of Southeast Asian Nations (ASEAN) has become a preferred destination for global portfolio investors as a result of sustained weakness in developed economies. Investment inflows result in increased demand for these currencies, including the Philippine peso, creating strong upward pressure on value. Some economists expect a near-term correction in the value of the peso, citing the high price to earnings ratio (P/E ratio) of approximately 17, following months of record-setting gains on the Philippine Stock Exchange.

A BPAP member survey conducted last week on the impact of the strengthening peso revealed that 46.7% of respondent executives say it has been difficult to hit revenue targets. Respondents also said that they have lost some business to other destinations (40%) or cancelled expansion plans (40%).

Hernandez explained that while cost is an important factor for clients outsourcing work to the Philippines, the Philippine IT-BPO industry has traditionally competed for business on the basis of quality of service and productivity. “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. That’s becoming increasingly difficult as the peso continues to appreciate.”