A new whitepaper from PricewaterhouseCoopers states that while Canadian companies have lagged behind U.S. companies in offshore outsourcing of IT services, several factors are changing the landscape of the market and more Canadian companies will use offshore outsourcing in the future.
"Basically, we spoke to vendors, service providers of IT services, as well as a number of large Canadian corporate buyers, and everyone agreed on two things," said David Ticoll, an IT strategist at PricewaterhouseCoopers and one of the authors of the report, A Fine Balance: The Impact of Offshore IT Services on Canada's IT Landscape. "Number one, offshore outsourcing of IT services in Canada has lagged the U.S. for the past several years, but number two, that's about to dramatically take off, Ticoll said. We're really on the cusp of a dramatic increase in the use of offshore outsourcing by Canadian companies."
According to Ticoll, there are four reasons for the expected upsurge in offshore outsourcing. The rise of the Canadian dollar is making it less attractive to keep IT services in the country and more attractive to move work offshore. Hype and media coverage of the opportunity in the U.S. and Canada is creating a snowball effect in the usage of offshore outsourcing. Foreign companies are pitching Canadian companies on the idea of moving their IT services offshore. Finally, companies that have experimented with offshore outsourcing pilot projects (mostly in India, but also in other countries) have had success and are ready to step up their offshore outsourcing operations.
According to Robert Scott, a PricewaterhouseCoopers partner, leader of the company's Canadian IT Advisory practice and one of the report's authors, Canada is at a turning point. Most of the work to date has been looked at offshore as a tactical perspective, but many respondents to the study said early success with offshore outsourcing has encouraged them to elevate this and look at it more strategically. Their views on risk has changed as well, Scott said. Specifically, offshore providers generally were assuming higher levels of project risks than domestic players but were not stepping up to assume business risks.
"We think that's a significant trend that is going to change and will have a significant impact on who's successful in securing marketshare in this market going forward," Scott said.
A number of Canadian jobs are expected to move offshore, Ticoll said, but the question is how this is going to play out. There are currently 550,000 Canadians doing IT professional work, but by 2010, 75,000 of these jobs are expected going to migrate offshore, which Ticoll added was a conservative projection.
What does this mean to Canada's economy and its job market? If the right actions are taken, job losses can be offset and jobs in IT can even be increased by 165,000 positions by 2010, Ticoll said. The core of the opportunity is for Canada to become a good resource for IT. If Canada can win three per cent of the global IT marketshare by 2010, that means an increase of 200,000 jobs.
"We need to make sure Canada is seen in a global context rather than a North American context," Scott said.
To compete, Canadians need to focus on high-value, business-centric solutions, but it's a multi-part strategy to strengthen the job market, Ticoll said. On the upside, even when moving IT offshore, 30 per cent of jobs still need to be done near headquarters. In order to balance geopolitical risk, firms are looking and shifting some work to Canada.
The report advises Canadian businesses to focus on areas where Canada already has a foothold, such as in digital animation, accounting, human resources and procurement -- areas that already have significant clusters in Canada or areas where proximity is important.
This is not a trend; it's here to stay, Ticoll said, adding that global distribution of knowledge work is here to stay. The work being done doesn't need to be done where the work is being delivered. Instead, it can be done anywhere.
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