PwC: Become nearshore or risk losing to offshore

A PricewaterhouseCoopers study released Wednesday suggested the onus is on Canada to market itself as a global provider of technology services to offset Canadian IT jobs moving overseas.

Not only does the study — entitled A

fine balance: The impact of offshore IT services on Canada’s IT landscape — discuss Canada’s role as a nearshore provider of IT services for the U.S. and Europe, it suggests offshore outsourcing of Canadian IT services to overseas markets has lagged the U.S. for years.

The industry, however, is “”on the cusp of a dramatic increase”” in the number of Canadian companies that outsource work to foreign markets, said David Ticoll, an author and IT strategist who helped write the report.

Ticoll said this move can be attributed to several underlying issues:

  • The rise of the Canadian dollar has made it more appealing to move work offshore but also to keep it here;
  • Heightened media coverage is raising awareness of offshore outsourcing;
  • A number of companies are moving into Canada and pitching local firms on this idea; and
  • Several Canadian user firms have done pilot projects with offshore outsourcing and are ready to implement broader initiatives.

As it stands, the Canadian technology sector can expect 75,000 of 550,000 IT positions to move offshore to regions like India, Russia and Latin America by 2010, according to PwC’s conservative estimate.

“”There are a number of actions that can be taken –– not only to offset those job losses –– but in fact to increase the number of IT jobs in Canada by as much as 165,000.””

PwC advises Canada to become even more of a nearshore venue for IT work serving the U.S. and Europe. Canada has been providing nearshore IT services to countries like the U.S. through some 150,000 call centres, but the number of skilled IT workers employed on outsourcing projects falls below 15,000, said Ticoll.

“”If we can win a three per cent global market share of the forecasted global market by 2010, that translates into well over 200,000 jobs,”” he said.

Canadians can look for opportunity in several places. The rule of thumb, Ticoll explained, is 30 per cent of jobs on a major IT project shifting overseas from Canada has to be done domestically because of the need to ensure the work is being managed effectively.

Another “”big bucket of opportunity”” for Canadians concerns advanced and specialized technologies like animation, bioinformatics, content management, retail banking, digital media distribution, health informatics and business process outsourcing.

“”The fundamental reason why Canada can compete in these markets is, of course, we still have competitive labour costs,”” said Ticoll. “”Plus we have cultural affinity as well as physical proximity”” to western countries, not to mention innovative clusters in some of these industry areas.

Canada also boasts new approaches to software design and development that benefit from close human interaction and need a lot of tangible business knowledge, he added.

Service providers calculate Canadian companies that outsource their work overseas save about 30 per cent, whereas Canadian clients themselves pegged their savings at closer to 20 per cent but said work quality and responsiveness made up for the low figure, said Robert Scott, PwC partner and leader of the Canadian IT advisory practice. He added U.S. customers shifting work to Canada can expect a 20 per cent cost savings as well.

But while Canadian companies are ready for outsourcing, they should still be aware of the risks, cautioned Scott. One large Canadian company that had significant programs with offshore providers decided to bring the work back home to maintain intellectual property, he said.

“”They see that as being a competitive weapon against others who might choose to use offshore or at least outsourcing in general as a short-term cost benefit.””

PwC’s study was based on interviews with vendors, service providers of IT services and large Canadian corporate buyers.

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