Rising cost of doing business, strong peso choking exporters

CEBU, Philippines - Small and Medium entrepreneurs (SMEs) in exports expressed apprehensions that the upswing of the value of the peso against the dollar coupled with the rising cost of doing business in the Philippines would further squeeze their business.

Exporters in the Gifts,Toys and Housewares, Foundation Inc., (Cebu-GTH) is reiterating its call to the government to intervene with the foreign exchange so exports will be saved from further difficulties.

Former Cebu-GTH president Jenifer Cruz said that aside from the industry’s battle to remain competitive in the world market due to the strengthening peso, exporters are now facing another challenge of adjusting to the expensive cost of supplies and labor.

“At this time, its hard to expand,” Cruz said stressing that Philippine products per se is still competitive in the world, due to its quality and design. However, the changing preferrence of the world market now, wherein price is already the main consideration of buyers, costly products may no longer sell as fast as before.

With the P20 increase in labor cost, and increase of power price, raw materials, logistics, among others have put an additional cost of operation by at least three percent to four percent.

Cruz added that the SME exporters can not afford to jack up their prices, otherwise their share will be snatched by the competitors.

This time, he said what keeps the SME exporters sustain its share in the market, is its relationship with customers.

This means, that those who were not able to forge close relationship and good track record to their clients, may not be able to sustain their export business, specifically those who are still starting, or those who do not have enough capitalization improve marketing blitz, and investment on customer relationship.

Now, that exporters are urged to shift their focus on marketing their products to the emerging Asian market, Cruz said this is another investment that exporters should venture into. Starting off a new market is hard and costly.

Latest report from the United National Economic and Social Commission (ESCAP) revealed that trade developing countries in Asia and the Pacific that include the Philippines will continue to grow rapidly in the next few years, as the region post promising prospects for increasing domestic and regional demand.

The Group of Three economies of the G3, which considered as the traditional market, (Japan, US and EU), is seen to experience weak long-term economic difficulties, thus affecting the demand for export products.

ESCAP identified various trends various trends and opportunities that could support growth of the Asia and the Pacific countries. The expected rapid and robust growth and massive urbanization in the region, specifically in China, and India provides opportunities for the region.

These most populous countries in the world are seen to gain almost 500 million urban residents during the next 20 years.

According to Cruz, although it is good to start off penetrating new market, such as Asia, exporters will continue to suffer in competitiveness if the cost of peso versus the US dollar will continue to strengthen, as well as the high cost of doing business in the Philippines.

On the other hand, although the Philippines has excess supply of dollars due to the increasing OFW remittances, and foreign capital inflows, the foreign exchange rate is seen to hover within the P42 to P44 levels for the rest of the year, economists projected.

Economist Bernardo Villegas, of the University of Asia & the Pacific (UA&P), the Bangko Sentral Ng Pilipinas (BSP) is trying to control the strengthening of the Peso versus the US dollar, as the impact of the strong peso could affect millions of families depending on the remittances from their OFW relatives.

Villegas said the dollar remittance this year is seen to grow by at least six percent, but the problem is that the peso is appreciating too much, and “OFW relatives are already complaining.”

The strong peso, he said huge impact to the local economy, as purchasing power of the dollar-remittance dependent companies will be largely affected.

“BSP knows exactly how it would affect the economy,” he said, if it will not intervene the value of the Peso versus the US dollar.

While exporters are aching for the instability of the foreign exchange rate, Villegas said that the Peso-Dollar exchange will not go down further and will stay within the P42 to P44 levels. (FREEMAN)