Canada Earns Spot in Global Outsourcing Game

Canadian outsourcing vendors tend to attract sophisticated work and projects closely tied to American culture and the English language. As such, despite the stronger numbers of outsourcing firms and employees in offshore locations such as India and the Far East, Canada is holding its own against overseas competitors, especially in high-end project areas.

“The outsourcing market in Canada is likely to grow significantly, but it is unlikely to challenge India and China in headcount,” said Rob Scott, a partner at PricewaterhouseCoopers (PwC) Canada in Toronto. However, in the past year, he and his colleagues in PwC’s advisory business have seen a significant increase in clients’ awareness of Canada as an outsourcing option.

Proximity to the United States and cultural overlap have certainly helped Canada win many of its outsourcing clients.

“Canadian companies tend to focus on IT services where proximity [to the U.S.], both physical and cultural, matter,” Scott told CRM Buyer. “Examples include software development related to business intelligence and industry-specific applications as well as business process outsourcing and customer service-oriented call centers.”

Call Center Commitments

Datamonitor estimates that Canada has 26,300 call center workstations serving clients based in the United States. The same research firm predicts that the call center industry in Canada will grow by 7.9 percent each year in the coming three years.

Despite its growing popularity, outsourcing to Canada has tended to raise fewer American tempers and has attracted less political and media attention in the U.S. than the outsourcing of U.S.-based work to facilities overseas. That may be in part because of relative job volume.

According to PwC, Canada employs around 150,000 workers devoted to outsourcing projects originating in the U.S. As many as 75,000 of these are call center employees, said Jacob Jegher, an analyst with Celent Communications. But that pales in comparison to the 2.85 million reps working within the United States.

Canada seemingly poses little threat to U.S. jobs, at least in this area. The same can’t be said for India, however, where there are approximately 300,000 total outsourcing jobs currently, and the industry is set to grow 40 percent in 2005, according to the country’s National Association of Software and Service Companies. “Canada’s volume of outsourcing employees is well below that of India’s,” said Jegher.

Preferred Providers

At present, the opportunity Canada has to grow its stake in global outsourcing appears to have few boundaries, analysts say. U.S. companies relying on others to run their business intelligence analytics, corporate reporting and data warehousing operations will want those functions kept geographically close because they require heavy involvement by the U.S.-based project manager. In addition, said Jegher, “There is an opportunity for Canada to attempt to recoup business from companies who have outsourced elsewhere but aren’t seeing the type of results and/or quality that they expected.”

Similar regulatory environments are another boon. “The similarity of the Canadian regulatory environment to that of the U.S. in terms of Sarbanes-Oxley and privacy protection may also drive more work to Canada instead of lower-cost overshore locations,” added PwC’s Scott.

Foreign Firms Taking Note

The benefits to taking business to Canada vs. overseas are strong enough to have inspired another trend — the establishment of Canadian offices by Indian and other offshore outsourcers.

Scott said these firms set up shop in Canada for two reasons. In their launch, they focus on their desire to get Canadian companies to outsource work to India. But covertly, they seek to soothe the sensationalist backlash against India as an outsourcing region. A “near-shore” office or North American face to their operations helps reduce that concern, he said.

Jegher told CRM Buyer that the benefits to U.S. firms of outsourcing to Canada are many. “From a cost perspective, the cost of labor in Canada tends to be lower than in the U.S.,” he said. “U.S. companies have also been greatly benefiting from the Canadian dollar. Favorable exchange rates have been a great incentive for U.S. companies looking to outsource to Canada.”

Additionally, representatives of the U.S. companies who must visit their outsourcing vendors in person pay less for travel and arrive sooner in Canada than they would if partners were located in, say, India or the Philippines.

“There are no time major zone differences to contend with, and Americans can call into an English-language call center and never really know that they have left the U.S., unlike outsourcing to India or other overseas locations,” Jegher said.

PwC’s Scott added that IT service costs in Canada are generally about 20 percent lower than in the U.S. “This is due to a combination of lower currency [value] and lower average IT salaries,” he said. “While the rise of the Canadian dollar against the U.S. dollar in the past year has eroded some of the currency savings, the difference in IT salaries remains in favor or moving work from the U.S. to Canada.”

Analysts say that even with a competitive global market, Canada has unique strategic advantages that outsourcing vendors located elsewhere simply do not. “Canada will remain a strategically important location for U.S. companies,” Jegher concluded.