Tuesday, November 20, 2007 ICT official urges BPO firms to hedge amid falling dollar
A CABINET official has urged global business process outsourcing (BPO) providers with extensive Philippine operations to defend themselves against the rising peso and the falling US dollar by initiating hedging programs.
“The peso’s advance versus dollar is far from over, if we are to believe the currency analysts of leading global banks. In fact, the most aggressive of these analysts see the peso gaining another 30 percent against the greenback over the next 24 months,” Catanduanes Rep. Joseph Santiago, chairman of the House committee on information and communications technology, said.
Capital
“Thus, it would make a lot of sense for BPO providers with dollar-based income and dollar-based capital spending programs to hedge themselves, if only to control and manage the financial risks they may face in the months ahead in connection with the strengthening peso,” San-tiago said.
Santiago made the statement shortly after Deerfield, Illinois-based APAC Customer Services Inc. bared that it has embarked on a currency hedging program, while improving core operating efficiencies in the Philippines, where the company now employs 3,500 college-educated, fluent English-speaking Filipinos in three contact centers.
Retention
In a regulatory filing, APAC said “We’ve measurably improved employee retention, program quality and operational efficiency—all keys to our long-term success. We’ve also identified a fourth site the Philippines (in Sta. Rosa, Laguna) to support our continued offshore expansion and initiated a hedging program to protect the company against further strengthening in the Philippine peso.”
APAC recently launched its third contact center, with a staff of 1,500, at the Araneta Center in Cubao, Quezon City.
Offshore
The company’s first two contact hubs, backed by a combined staff of 2,000, are at the Northgate Cyberzone in Alabang, Muntinlupa City.
APAC built its first call center in the Philippines in 2001. All of the company’s offshore or non-US operations are now based entirely in the Philippines.
A stronger peso means that multinational BPO providers would have to allocate more dollars to pay for their continuing operations as well as expansion activities here.
Hedging is a strategy designed to minimize exposure to an unwanted business risk, while still allowing the business to profit from an investment activity.
A currency hedging program refers to a side investment that is taken out specifically to reduce or cancel out the risk associated with exposure to certain currencies.
Projections
Some of the most common types of foreign currency hedging vehicles used in today’s financial markets include forward contracts, options and swaps.
Banque Nationale de Paris-Paribas sees the peso surging to 37 to a dollar by 2008, and 30 to a dollar by the end of 2009. Hong kong Shanghai Banking Corp. sees the peso firming up at 41 to a dollar by 2008, and 40 to a dollar by the end of 2009.
Citigroup Inc. sees the peso rising to 40.75 by the end of the 2008. The Swiss banking giant UBS AG sees the peso appreciating to 41 to a dollar by the end of 2008.
