When American companies look to outsource their IT services, the choice is clearly Canadian, says the president and CEO of the Ottawa Centre for Research and Innovation.
Compared to popular offshore destinations such as China and India, Canada easily wins out in software development, engineering, real-time software development systems and application development, said Jeffrey Dale.
It's a message he and other members of the local business community will take to Boston Wednesday when they attend a technology and investment partnering conference entitled Outsourcing to Canada: Shared Risks? Shared Rewards!
Dale will sit on a panel that will discuss the value of outsourcing IT to Canada. Also presenting will be Fred Boulanger, president of Ottawa-based Macadamian Software Engineering.
"Why Canada versus India and China?" said Dale last week. "In China, there's a high risk of outsourcing IT because of the language issue. English is not there. India, on the other hand, does have the language. But it doesn't necessarily have access to the customer base."
A nearshore location such as Canada, however, has the language, the proximity and the same time zones, allowing Canadians to work more closely with their American counterparts, said Dale.
There are also certain tasks that cannot physically be carried out at offshore locales, added Boulanger. His company specializes in delivering products for independent software vendors, or original equipment manufacturers.
"We work hand-in-hand in a very tight collaborative approach with the R&D groups of our customers. So, it's a high-level interaction, a short feedback loop that requires a lot of agility and flexibility in the way we develop the software. Since we are a plane ride or phone call away in the same time zones, we're the ideal lab to do this work."
Outsourcing to the Far East may be cheaper, but it depends on the way you "slice and dice the numbers", said Boulanger.
"We like to think that we don't compete in price because the work that we do isn't stuff they would ship out there anyway because it requires too much interaction."
In fact, too much attention is focused on the cost-savings that can be derived from cheap labour as a main driver for outsourcing, said Andrew Efstathiou, program manager with Boston-based Yankee Group.
"Yes, the cost of labour is so much lower in India and China, but the cost of management oversight is significantly higher."
There are proximity and physical infrastructure limitations at a Far East locale, such as network connections that make a real-time data centre problematic, said Efstathiou.
"Truth is, it's a higher cost of labour in Canada than India, (but) it's still a lower cost of labour than in the United States."
It's often less risky and more convenient to go to Canada for certain tasks such as computing and data centre management, he added.
Canada is attractive due to its high-quality engineers, he said. And while the oft-discussed Indian marketplace has a growing number of software engineers, this number still represents 1.8 per cent of total world IT services, he added.
But for manufacturing purposes, Asia is still the way to go, Efstathiou said.
A recent report by PricewaterhouseCoopers puts a damper on the Canadian option. A Fine Balance: The Impact of Offshore IT Services on Canada's Landscape found Canada's reputation as a venue for nearshore IT outsourcing is "somewhat exaggerated".
"Though the country may have some 150,000 call centre workers servicing U.S. firms, it's likely that the number of skilled IT workers engaged in outsourcing projects is well under 20,000, if not 15,000," the report said.
In comparison, a study for the Indian government projects that country's revenues from IT and IT-enabled services will jump from US$12 billion in 2003 to US$62 billion in 2009, translating into 1.5 million more jobs.
The Pricewaterhouse report concluded: "To differentiate Canada from low-cost centres in India, China, Russia and the Philippines, Canadian IT services companies must leverage industry, knowledge, emerging technologies and expertise in business processes."
But according to Dale, the North American education system encourages graduates to be more inquisitive, making them more apt to challenge the status quo and suggest to clients better ways of doing things.
"We do hear about other jurisdictions where you tell someone to build the widget and they build it," he said. "But is that everything you're looking for? Could there have been a better way to do it?"
From his experiences with American clients, Boulanger said it's a case of sharing the same values and being on the same page. This enables the tight-knit relationship critical to getting the job done, he said.
Also, if a company outsources its IT, it will want to ensure its data will be treated with the same privacy, legal and confidentiality considerations that exist at home, said Dale.
"You can't tell me that China's intellectual property laws are similar and the enforcement is similar (to America's). So it all depends on what type of arrangement and comfort level you want to have with your outsourcer. Canada offers those (standards) to a much higher extent than any other jurisdiction other than America outsourcing within its own borders."
Privacy and confidentiality are growing issues among Chinese and Indian firms, added Dale.
"We've heard about disks getting stolen from Indian companies, we've heard about Chinese companies that use lists for their own companies to try and find new customer bases. Not that that's unethical, that's just their ethics and we think the (U.S.) is going to abide by ours."
The topic of outsourcing resurfaced in the headlines last week when IBM employees in the United States staged a protest at the computer giant's annual general meeting to express fears of losing their jobs to the outsourcing trend.
