Peso Beating Rupee Threatens Call Center Growth: Southeast Asia

For the Philippines’ $13 billion outsourcing industry, the peso’s surge has been compounded by a slide in larger rival India’s rupee.

The peso’s 6.5 percent gain to 40.622 per dollar in 12 months makes it Asia’s best performer, according to data compiled by Bloomberg, while the rupee’s 7 percent slump to 53.83 is the region’s second-worst decline. Both currencies traded around 44 to 45 versus the greenback two years ago.

“The peso appreciation has become a significant cause for concern,” Benedict Hernandez, president of the Business Processing Association of the Philippines, or BPAP, said in a Jan. 15 telephone interview from Manila. “While our costs have always been higher than India, the disparity has widened simply because of the currency.”

The central bank has sought to curb the peso’s gains as Southeast Asia’s fastest-growing economy lures investors seeking higher returns than in developed markets, where interest rates are near zero. In a December survey by BPAP, members of the group cited the currency’s strength as a bigger business risk than corruption, natural calamities and poor infrastructure.

“The competitiveness of outsourcing companies may be affected because their revenues are in dollars and costs in pesos,” Euben Paracuelles, an economist at Nomura Holdings Inc. in Singapore, said in a Jan. 17 telephone interview. “India’s rupee has been going in the other direction,” affecting Philippine outsourcing companies even more, he said.

Rupee Recovery

Paracuelles said the rupee has “stabilized a bit.” The Indian currency has rebounded from a record low of 57.3275 per dollar reached on June 22, data compiled by Bloomberg show. It will strengthen to 50 this year as the central bank cuts interest rates to jump-start the slowest growth in a decade, according to Commerzbank AG, which had the closest estimates in the last six quarters as measured by Bloomberg Rankings.

Prime Minister Manmohan Singh’s government increased a tax on bullion shipments to curb gold imports, which account for 80 percent of the nation’s record current-account deficit. The measure will support the rupee, Paresh Nayar, head of money markets and currency at FirstRand Ltd. (FSR) in Mumbai, said in a Jan. 21 interview.

‘Stable Currency’

“We’d rather have a stable currency because it would make it easier for us to sign long-term contracts,” Som Mittal, president of Nasscom, the industry lobby group for Indian software and technology companies, said in a Jan. 17 interview. “We’d rather the exchange rate not be a source of profit or loss for our companies.”

The peso touched 40.55 per dollar on Jan. 14, its strongest level since March 2008, according to data from Tullett Prebon Plc. The Philippine currency will probably strengthen to 40.5 this quarter, according to the median estimate of 26 analysts in a Bloomberg survey.

Convergys Corp. (CVG), Aegis PeopleSupport Inc. and Teleperformance (TLPFF) are among global companies operating in the Philippines that develop software, run call centers and back offices providing services such as medical transcripts, finance and accounting. The business-process outsourcing generated about $13 billion in revenue last year, according to BPAP, which predicts sales will almost double to $25 billion in three years.

The industry employed 772,000 people in the Philippines last year and made up about 5.9 percent of gross domestic product, making it the country’s third-largest net dollar earner after tourism and remittances, according to Hernandez, who is also the local BPO operations chief at Accenture Plc (ACN), the world’s second-largest technology-consulting company.

Industry Overview

The BPAP estimates the industry will employ 1.3 million people in 2016 and account for 10 percent of GDP, matching the share of remittances by overseas workers.

While India’s annual outsourcing revenue of $100 billion to $105 billion is eight times the size of the Philippines, the Southeast Asian nation’s pool of English speakers give it an advantage in offering voice services to customers in the U.S., according to an Oct. 31 report by industry adviser Everest Group.

Voice services accounted for 69 percent of 2011 BPO revenue in the Philippines, and the industry is starting to diversify beyond call centers, the Everest Group said in a separate report dated May 14, 2012. The Philippines has overtaken India as the largest provider of voice services, according to BPAP’s Hernandez.

Lost Business

The nation’s outsourcing industry can compete against most other countries in terms of cost and quality, Hernandez said. Even so, “we can’t sustain our growth and attractiveness if the peso continues to strengthen,” he said, adding that BPAP has sought a meeting with the central bank to express concern about the appreciation.

In last month’s survey by the outsourcing group, 47 percent of respondents said meeting sales targets has become tougher, while 40 percent said they lost some business to foreign rivals.

Bangko Sentral ng Pilipinas joined South Korean authorities last month in clamping down on exchange-rate volatility. On Dec. 26, the central bank said it will impose a ceiling on non- deliverable forward contracts for local lenders at 20 percent of capital, and 100 percent for foreign entities. In January 2012, it ordered lenders to provide more funds to cover risks on those hedges, and in July banned foreign funds from putting money on its high-yielding accounts to limit inflows.

BSP will impose further prudential measures to keep “excessive volatility” in check, Governor Amando Tetangco said in a Jan. 14 e-mail.

‘Shows Intervention’

Philippine foreign-exchange reserves increased by $9 billion to a record $84.2 billion, which “shows the extent of BSP’s intervention,” Deputy Governor Diwa Guinigundo said in a Jan. 15 interview. “Without us intervening, the peso could have been much stronger.”

Standard & Poor’s raised its outlook on the nation’s credit rating to positive on Dec. 20, saying an upgrade is possible in 2013, after the economy expanded 7.1 percent in the third quarter from a year earlier, the fastest pace in two years. The Philippines has the highest junk rating at S&P, Moody’s Investors Service and Fitch Ratings.

S&P and Fitch cut their ratings outlook for India’s investment-grade ranking to negative last year, saying it may be downgraded to junk if growth and policy reforms slow.

Asia’s third-largest economy will expand as little as 5.7 percent in the year through March 31, the government said Dec. 17, the least in a decade. The Reserve Bank of India will cut its benchmark repurchase rate to 7.75 percent from 8 percent at a Jan. 29 review, according to 15 of 18 analysts in a Bloomberg survey. Two predict a cut to 7.50 percent and one no change.

‘No-Brainer’

The Philippine central bank will keep its overnight borrowing rate at a record low 3.5 percent today, according to all 20 economists in a separate Bloomberg survey.

Managing the peso might become more challenging once the Philippines wins an investment-grade ranking, Guinigundo said. The outsourcing industry should ask the government for help in cutting costs in other ways, he said.

“We can’t change the exchange-rate system just to be competitive with India,” the deputy governor said. “They can’t just rely on the central bank to bring the peso down to 45. It’s a no-brainer.”

To contact the reporters on this story: Norman P. Aquino in Manila at naquino1@bloomberg.net; Clarissa Batino in Manila at cbatino@bloomberg.net.

To contact the editors responsible for this story: Lars Klemming at lklemming@bloomberg.net; James Regan at jregan19@bloomberg.net.

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