The strengthening Philippine peso against the dollar is eroding the cost competitiveness of the Philippine information technology-business process outsourcing (IT-BPO) industry, according to the Business Processing Association of the Philippines (BPAP).

Citing analysis by Everest Group and Outsource2Philippines, BPAP President and Chief Executive Officer Benedict Hernandez said that the combination of an appreciating peso and a depreciating Indian rupee has provided India with a meaningful cost advantage.

“With the 30 percent difference in peso and Indian rupee exchange rate with the US dollar, the cost differential has substantially widened,” he said.

“And that is much more difficult to manage,” Hernandez added.

The Association of Southeast Asian Nations (Asean) has become a preferred destination for global portfolio investors as a result of sustained weakness in developed economies. Investment inflows result in increased demand for these currencies, including the Philippine peso, creating strong upward pressure on value. Some economists expect a near-term correction in the value of the peso, citing the high price-to-earnings ratio (P/E ratio) of at least 17, following months of record-setting gains on the Philippine Stock Exchange.

But a BPAP member survey conducted last week on the impact of the strengthening peso revealed that 46.7 percent of respondent executives said that it has been difficult to hit revenue targets. Respondents also said that they have lost some business to other destinations (40 percent), or cancelled expansion plans (40 percent).

Hernandez explained that while cost is an important factor for clients outsourcing work to the Philippines, the country’s IT-BPO industry has traditionally competed for business on the basis of quality of service and productivity.

“Quality of service and productivity continue to be at the core of our value proposition. But our industry must also be able to operate within acceptable market prices. That’s becoming increasingly difficult as the peso continues to appreciate,” he said.

Acknowledging that government has limited options to deal with the appreciating peso, Hernandez nevertheless said that, “We have enjoyed strong support by and collaboration with government and its agencies, including the Bangko Sentral ng Pilipinas. As in the past, we are confident that government will work with us in this area to maintain competitiveness of our IT-BPO industry.”

He also said that the industry is taking steps to address the issue.

“We are undertaking capital facility efficiency measures and working to reduce operating costs, especially those related to energy,” Hernandez said.

BPAP forecasts for 2012 that the IT-BPO industry’s revenues will hit $13 billion, while employment will reach 772,000 full-time knowledge workers.

In 2013, it expects to generate $16 billion and employ 926,000. By 2016, the industry forecasts $25 billion in revenues and 1.3 million employees.