Canada, a near-shore alternative?

Alan Pelz-Sharpe, VP research and consulting, North America

When offshore outsourcing is mentioned in North America, it is almost always in connection with India. Despite the wide choice of locations on offer, from the Philippines to Russia, India seems to be the region that grabs the attention. Companies such as Wipro, Infosys and Tata have done a great job in promoting and selling their services in North America; likewise the Indian Government has done a good job in supporting and fighting for Indian outsourcers.

Yet when all is said and done, India is a very long way from the US, and many of those who have taken this particular outsourcing route complain volubly that distance, language and cultural issues can prove costly.

Canada, has one of the most vibrant areas of technology activity in the Northern Hemisphere, and is significantly close to the US. Canada has the potential to be one of the best locations for technology outsourcing, a hub for great R&D, cost effective, well educated, and a great cultural match with the US. Though to date much of Canadian outsourcing activity has surrounded Data Centre and ‘Sunsetting’ activities, recently there has been more and more activity around software development, and an attempt to move up the food chain into BPO. Yet when one thinks of Silicon Valley, Bangalore and Seoul, does one also think of Canada? The answer is probably no, but consider the country’s selling points:

• High educational and IT standards equal to, if not better than those of India

• Minimal business culture differences with US

• Negligible language barriers

• Geographically close for support and relationship building

• Links into the UK and the Commonwealth

• Geopolitical stability

• Home to innovative, strong IT vendors such as Cognos, Hummingbird, RIM and Opentext

This list may not put Canada in the same league as Silicon Valley or Bangalore, but it should at least make them a serious contender.

Add to these, the crunch benefits of:

• A Canadian Dollar that has consistently traded below the US Dollar for over 20 years. Due to Canada’s near dependency on US related trade, this in turn has resulted in a de-facto discounted trading environment north of the border

• And the fact that salary expectations in Canada are considerably more modest than the US, (though higher than those in India)

The bottom line is that the Canadian Government should be jumping on this opportunity to promote its technology prowess and the benefits of the location. Yet Canadians are at best sheepish about promoting the ‘value of a weak currency’ and in generally admitting that Canada represents a discount option for the US.

A Government-led push could help many technology vendors and service providers, but this is currently lacking. As a result, home-grown players are faced with considerably limited growth potential.

All the major IT service players such as EDS and IBM have Canadian resources, and now even the likes of Wipro are opening Canadian operations. The big issue is why aren’t there any Canadian Wipro’s and Tata’s? Where are the emerging success stories that can take a leadership position and drive the maple leaf forward? There are companies such as CGI and ACS that may have the potential to lift themselves up to that level, but they will need help

Moving forward, the Canadian Government should become far more active in fighting for technology work and in articulating its arguments better. It has everything in its grasp to become a world leader in the field and to boost its economy. As a side strategy it could also continue to build alliances with Indian outsourcing pioneers. A mid term view to providing a halfway house opportunity, that provides an option for US firms who want to push for the dream cost savings that India claims to offer; but who have concerns regarding the distance, both physical and cultural, between the locations.

Whether the Canadian Government really goes out and promotes this location strongly or not, Canada remains a good alternative to North Americans looking to outsource IT operations. Clearly Canada is not going to be the first point of call for European clients, but for the US, facing an ever increasing backlash, it represents a nearshore alternative that on paper at least, answers some of the issues raised by offshoring to more distant locales.

Alan Pelz-Sharpe can be contacted directly on aps@ovum.com.