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Tuesday, September 05, 2006
Peso strengthening hurts BPO firms in RP
United States-based business process outsourcing (BPO) providers with extensive Philippine operations would be significantly affected by the peso’s faster-than-expected rise against the dollar, Catanduanes Rep. Joseph Santiago said.
“Compared to a sudden surge, a gradual advance of the local currency would have less impact on the financial results of BPO providers,” Santiago, a backer of the country’s technology-enabled service industries, said.
“BPO providers generate revenues in dollars, but pay for their operations here in pesos. The fewer pesos they get for each dollar, the costlier for them operations-wise. Conversely, the more pesos they get per dollar, the cheaper for them to fund expenses here,” Santiago pointed out.
Risk
Santiago, former chief of the National Telecommunications Commission, cited the case of Los Angeles, California-based People-Support Inc., which spends a large sum for its Philippine operations that include 4,700 call center production seats and a rapidly growing transcription business.
In a US regulatory “market risk” disclosure, People-Support said “Our operations are subject to foreign currency exchange rate fluctuations, particularly revisions in the peso. In the six months ending on June 30, 2006, about 57 percent of our expenses were incurred in the Philippines. Almost all our revenues are in dollars,” the company said.
Expenses
“A 10 percent increase in the dollar’s value relative to the peso would reduce expenses associated with our Philippine operations by roughly $2.1 million for the six months ending on June 30, 2006, whereas a 10 percent decrease in the dollar’s relative value would increase the cost associated with these operations by about $2.6 million over the same period,” the company added.
PeopleSupport, which expects to generate between $101 million to $103 million in revenues this year, said its Philippine
subsidiary is funded via dollar accounts held here.
“Payments for employee-related costs, facilities management, other operational expenses and capital expenditures are converted into pesos as needed. Historically, we have benefited from the peso’s decline against the dollar,” the company said.
“The more global the BPO provider’s operations, the less currency hazard. If a company spends in multiple foreign currencies in various offshore operations, the risk tends to be smoothened out. Thus, the net effect on financial results becomes negligible,” Santiago said.
Average
The local currency soared to a fresh four-year high of 50.70 to a dollar last week.
At this rate, the peso has gained nearly 10 percent from its 56.04 to a dollar monthly average in 2004, and almost eight percent from its 55.09 to a greenback monthly average in 2005.
The Development Bank of Singapore previously predicted the peso would rally to 50 to a dollar this month, and strengthen further to 49 to a greenback by March next year, owing to the Philippine government’s improved financial condition as well as higher-than-expected export revenues and migrant worker remittances. (PR)
For Bisaya stories from Cebu. Click here. (September 5, 2006 issue)
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