Monday, January 14, 2008

Rising Peso, Falling BPO

About 90% of all BPO/Call Center transactions being managed in the Philippines have North American clients or contracts. The fall of the American dollar will not stop global outsourcing (rough estimates say that only less than 5% of jobs are being done offshore) and in fact, will aggressively see a ramp to counter the effect of rising cost of business in the US.

On the other hand, it is equally true that global outsourcing has always been dictated by quality, cost and availability.

In an industry where revenue is defined by one currency and expenses is defined by another, it is ideal that the exchange rate remain relatively stable to ensure that yearend target for margins are consistent. But what do you do when the exchange rate fluctuates by almost 12% within a six month period? (e.g. from PHP 47 to PHP 41 versus USD 1)

companies that are targeting net profit margins of 35% - 40% will have to contend with managing margins at roughly a quarter less than their original targets. Where a single digit decrease in margins cause an immediate backlash in terms of stock and company value, imagine how this will look like if companies have to report double digit decrease in margins.

despite the balance of quality, cost and availability, there is no escaping that somewhere, somehow people will get laid off. not because there is no business to speak of, but because of simple economics to reduce cost.

We cheer the fact that our Philippine Peso is gaining ground over the American Dollar but this does not translate to automatic economic gains. China whose economy is hotter than a super nova has registered a 3% gain over the USD in the same period, a strategy that i suspect they are using to keep the cost of services and products artificially low.

If this is not yet clear, the 200T employed in the call center industry may soon find their jobs absorbed by China that is aggressively putting in place long term strategies to attract this business. And "long" is increasingly just around the corner.

2 comments:

lilah said...

Hi, Cacho!

I hope all is well with you! Happy New Year, friend!!!

Thank you for your article and I totally agree with you.

Just because the value of American Dollar is falling that does not translate that the Philippine Peso is getting stronger.

The US economy is currently on shaky ground; unfortunately, the Americans simply to refuse to admit that the country is in the state of recession. The credit & lending practices out here are so bad, I couldnt help btu wince everytime I hear about the foreclosure and unemployment rates. Talk about America being the land of milk & honey, eh?

Anyway, would love to elaborate some more but I'm on my lunch break so I cant stay for too long.

Be rest assured that all is well with Matthew and myself; and yes, please help me sing praises to the almighty for His blessings of a permanent job with WellsFargo Bank despite the recession.

Hope to chat with you again soon.

Lilah

Cattechnologies said...

I agree that global outsourcing has always been dictated by quality, cost and availability.

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