Saturday, August 18, 2007 Small call centers start closing shops
ABOUT 10 to 20 percent of small companies in the business processing outsourcing (BPO) industry have shut down since the start of the year as a result of the peso appreciation that has significantly reduced their revenues.
The grim situation currently experienced by the BPO industry, considered to be one of the country's bright prospects, was conveyed by Oscar R. Sañez, chief executive officer of the Business Processing Association of the Philippines (BPAP).
The peso has already appreciated against the US dollars by 20 percent since the middle of last year thereby affecting dollar-earning sectors, particularly the BPO and call center industry, service exporters and families of Overseas Filipino Workers (OFWs).
Sañez said the industry has suffered a very "direct hit" because its contracts are with US clients and thus they measure revenue in US dollars.
"Its (strong peso) impact is 20 percent since last year but only 10 percent this year. If we look only at the current year, the appreciation is 10 percent that means, our total revenues have declined by 10 percent," he said.
Total revenues generated by the BPO industry in 2006 reached US$3.4 billion from just US$350 million in 2001. The Philippines currently stands fourth in terms of industry size, next to Australia, India and China.
Like an export company, call centers and BPOs spend in pesos because they operate in the Philippines, he explained.
"In fact, we are seeing some increases in our peso cost by about three to five percent in line with the current inflation," he said. "But for the meantime, our costs have remained the same."
Sañez said the rising peso has hit small players in the industry in particular because they are the ones with little capitalization and thus they could not afford continuing losses.
"We operate on narrow margins 10 percent or less. If you have a margin that is wiped out, it would eat up your capital," he explained. "So, we're losing some businesses, we can tell that because many of them are not renewing their memberships. 10 to 20 percent of our small operators may have closed shops since the start of this year," he added.
There are currently 450 BPO companies in the country. But an industry expert estimated that total number of players in the industry could reach a thousand, including smaller players.
This disappointing situation, according to Sañez, would definitely affect the BPO industry's growth target as most of its small players are not able to expand.
Second, the peso appreciation has been affecting new investments because some local players may choose not to expand operations as they lack the needed capital to expand due to their inability to make margins that they are expecting for the sector, he added.
To stay in business, bigger BPO companies are exerting more efforts to improve their operational efficiencies by ensuring that their costs are well managed, their productivity is up and reducing some of their planned expansions and investments.
But Sañez cannot exactly say how long the call centers and other BPO firms could sustain their operations should the peso further strengthen.
"It depends on the size of the companies. We don't know, as long as the peso is appreciating, it continues to put pressure on them," Sañez said as he expressed hopes that the local currency be kept at P48 to a dollar.
This, as the BPO industry has been using the P48 to P50 level in its financial planning assumption. The peso has been hovering at the P44 to P45 exchange rates against the dollar for the past months.
"Reasonable exchange rate is the one that is not moving rapidly because rapidly changing currency is not good for the economy," he further said.
In light of the problems, industry players are seeking the government's help in the form of tax credits and assistance in their high power cost which is regarded as a major challenge that impedes the operation of BPO companies.
A study proposed the implementation of "peak load" pricing of electricity, which essentially lowers the electricity rate for night operation of BPOs.
"The reason for that (assistance) is, certainly, the government is benefiting from the appreciation of the peso through a lower acquisition cost for their importation of fuel and lower cost of debt servicing," he noted. "Because of that, the government has some savings or extra funds to at least help the industries that are affected by the appreciation," he said.
Despite the challenges, Sañez dispelled presumption that the BPO industry has already reduced its hiring rate.
"We're not really doing that because as of now, it's still a competitive industry. We still need to hire people based on the current demand," he stressed.
In fact, Sañez expressed optimism that the industry's ambitious US$12 billion revenue target by 2010 would still be achieved for the BPO companies to generate the targeted one billion jobs for BPO firms by that time. (Danielle Venz/Philexport News and Features/Sunnex)
