Canada still top dog in strategic impact outsourcing

Although India and Canada are still the most popular outsourcing destinations in their respective categories, emerging markets have made significant headway during the past year, according to a report released Monday by neoIT, a San Ramon, Calif.-based offshore advisory and management firm.

Eugene Kublanov, neoIT’s vice-president of corporate development, told IT World Canada that between 2004 and 2010, “client (outsourcing) portfolios are going to expand. Clients will be sourcing globally more and more of their IT and business processes.” With that trend, India and Canada could see some competition from emerging markets in each of the areas they lead, he said.

From neoIT’s perspective, there are two main categories in the outsourcing market. The first is the value proposition category — “what you get for your dollar” — in which India is the leader, he said. Canada, however, occupies first place in the strategic impact category, which is “when the type of services the market can provide have an immediate impact on clients’ services,” he added.

“Many high-value, mature services currently done in the U.S., like creating software architecture or performing entire processes for insurance claims, can be done both in the U.S. and in Canada,” he said, adding that if the work goes north of the border, the savings realized fall within the five to 10 per cent range compared to what it would cost to do the same work in the U.S.

The report predicted that from now through 2010, India will continue to remain in the value market and will probably not compete much with Canada, which will remain a strong, safe nearshore destination because it is well-suited to risk-adverse clients who are less price sensitive.

“They (India) will creep up a little bit toward strategic impact, but by virtue of where Canada is, with its…language capabilities and cultural affinity, these are tremendous assets when we’re talking about performing high value work,” Kublanov said. “All these things will continue to keep Canada in the strategic impact market.” He added that he doesn’t see Canada moving up in the value category in next six years — and competing in that area shouldn’t be the focus anyway.

India is well-suited to execute on well-defined type projects, “but when you ask them to innovate, that’s a challenge,” Kublanov added. Engineering education there is typically “well-defined, by the book” with not as much focus on liberal arts. “It’s the combination of liberal arts and technical education that produces innovative thinkers,” he said.

Jay Janarthanan, chief technology officer of TLI Software Private Ltd., an application development and business process outsourcing company with offices in Toronto, the U.K. and India, agreed that Canadian companies are better at the innovation side. On the other hand, it would not be realistic for them to try to compete with India on fixed-priced or well-defined work, he said.

“Let’s say a U.S. company has a team of business analysts who has spent time defining what the product is supposed to do and…have sent out a RFP. At this point Indian or other offshore companies are going to compete on price at a unheard level” and Canadian companies won’t stand much of a chance, Janarthanan said.

NeoIT’s report also detailed country-specific capabilities and risks for India, the Philippines, Russia, China, Canada, the Czech Republic, Poland, Hungary and Mexico.

While India remains the leading offshore outsourcing destination because of its early-mover advantage, the Philippines scores well as a destination for voice-based services, such as call centres, and for wholly-owned subsidiaries or “captive centres,” according to the report.

Phil Adie, TLI’s managing director, said the Philippines might become the next big competitor against India. “[The Philippines] is emerging as the poorer cousin and will probably give India itself a run in the ‘value’ market,” he said.

According to the report, Russia’s IT services market is growing rapidly due to the availability of highly skilled labour, its strong economy and the size and strength of IT service providers. It pointed out that Eastern Europe is emerging as the Czech Republic, Hungary and Poland ramp up to provide shared services to western Europe locations.

Adie agreed that Eastern Europe has “hit strides this year and probably for the next two because of the acceptance into the EU of most of the key new market leaders.” However, he added that Canada should have no problem maintaining its strategic advantage over these countries, partially because of the cultural similarities with the U.S. In Eastern Europe, for example, language could be a key issue. “The major centres are the only ones that can offer any type of proficient English support,” he said.

The report noted that China is growing at a more modest pace and will probably be in a better competitive position in three years.

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