There are no guarantees in life. Yet, it never fails to surprise the extent to which individuals get overly comfortable and when a sudden change occurs, they are invariably caught out.  In the timeless lyrics of Tears for Fears, all for freedom and for pleasure, nothing ever lasts forever. Truer words have never been spoken (or in this case sung), especially as it relates to the shifting sands of currency valuation.  This is a dynamic that the outsourcing community needs to manage in a proactive, realistic manner.

Foreign exchange (FOREX) may not be the most scintillating of topics when it comes to outsourcing, but it cannot be ignored.  The reality is that in 2023 very few BPO players operate in one location.  Clients want business continuity – this means having a flag planted in more than one country.  Given the extent to which onshore delivery (whether in Western Europe, North America or the ANZ region) has become excessively pricey due to ongoing labor shortages, ensuring capacity in less expensive offshore and nearshore destinations means higher levels of profitability.

Over the past two decades, many outsourcing providers have realized higher revenues on the back of lower salaries and real estate pricing — and favorable FOREX conversions.  This is a strategy that can yield positive results.  But what happens when currency levels start acting, well, funny?

This trend has become apparent over the past several months in many offshore destinations.  Indeed, the impacts are pronounced in certain established and emerging locations.  A prime example has been the emergence of the ‘super peso’ in Mexico.  In 2023, the peso has strengthened roughly 20% versus the greenback.  First and foremost, this is impacting Mexico’s massive remittances market. It is also making the cost of exporting CX services to the United States (Mexico’s prime BPO demand market) much pricier. For a location like Mexico that prides itself on premium CX solutions at affordable prices, the FOREX reversal is proving problematic for industry players, especially those in higher cost delivery centers in the north of the country.

Conversely, there is Egypt. The Egyptian pound has lost nearly half its dollar-traded value over the past 18 months.  On the face of it, this may look attractive to some BPOs and their clients; such a shift in FOREX means more affordable price points for enterprises in key demand markets.  In the near term, this may be true. However, the impact of inflation in Egypt should not be underestimated.  All inputs, including labor, equipment and facilities quickly become more expensive, thereby eroding cost advantages that outsourcers can pass onto their clients in the form of more competitive pricing.

History shows that relying on cheap FOREX as a prime competitive advantage is a questionable strategy. Consider the Canadian experience.  In the late 1990s, the Canadian dollar—aka the loonie—plummeted to less than 70 US cents. It stayed at that level for over a decade.  This prompted some of the world’s largest BPOs to open dedicated delivery centers for American consumers across Canada, taking advantage of not only proximity, language and cultural/commercial familiarity, but also cost arbitrage driven by the weaker Canadian currency.  Then the trend reversed. Passivity gave way to panic when the loonie achieved parity with the USD in 2008 and this pricing advantage evaporated.

Moving forward, outsourcing operators need to proactively address the murky universe of FOREX.  This is an important part of the modern BPO landscape that cannot be ignored. Thus, it is essential to keep a close watch on central bank operations, sources of country-level instability, and changing economic policies by governments. So too is having the know-how to provide the best strategies to hedge against sudden changes in currency prices.  The global nature of today’s business services space mandates no less.

Image from Jim Makos used under relevant Creative Commons license