Cheap outsourcing Canada

Cheap labour and security are two reasons U.S. companies may start looking north to outsource, says the senior vice-president of business engineering at IT services firm CGI Group Inc.

Dallas-based Michael Filak says companies are looking to outsourcing now more than ever because of a slowing economy and more focused priorities. What’s more, he added, those companies are starting to realize that keeping their data and other assets at home may not be the most secure option.

“Our initial focus always said that we had to have a data centre in the United States and then we finally came to the ‘Why?’ conclusion,” Filak said at a recent CGI technology luncheon in Toronto. “Who cares where the equipment lies? If the equipment can be here (in Canada), that’s good enough.”

Filak said near-shore outsourcing in Canada is a concept CGI came up with only a couple of years ago, even though he calls it “incredibly obvious.”

“Customers in the past would take their application development and move it to India and their hardware they would keep close-by,” he said. “The things that had no real benefit they wanted nearby, and the things that were strategic they let go half way around the world.”

Canada makes sense not only because of the favourable exchange rate, but also because companies can find more talent in this country for less money.

“It’s a double whammy,” Filak said.

Following Sept. 11, money isn’t the only rationale for moving.

“We have started to get calls from people who want to get a backup facility in Canada,” he said. “Canada is (seen as) neutral in this, so it is seen as being safer.”

Wolfgang Strigel, president of Vancouver-based development outsourcing firm Software Productivity Centre Inc., said much of his company’s revenue comes from the United States, due in no small part to the Canadian advantage.

“There is obviously the currency advantage,” Strigel said. “We are almost at the rates that India can offer. However, Canada is also an established force in the IT world. We have excellent education and we have excellent people in the industry in terms of experience. We are as close, in terms of culture, as you can get. We are also physically close.”

He added that his clients have been concerned in the past about “risky” countries.

“Canada is a bit like the best kept secret right now,” Strigel said. “I know there are a lot of U.S. people that don’t know that the price differential exists. As they become more aware of this, I wouldn’t be surprised if they prefer to outsource to Canada.”

William Martorelli, vice-president of e-services and sourcing strategies at Cambridge, Mass.-based market research firm Hurwitz Group Inc., said he doesn’t see a huge migration of outsourcing business to Canada anytime soon.

“Certainly, there would be a cost-advantage provided by Canada, though it is certainly much less than the cost advantage provided by other off-shore markets,” Martorelli said.

Policies that are intended to tighten up the border may indicate that Canada is not as safe as many think, and that could stymie some cross-border business, he said. He added that there might be other “psychological objections.”

“It seems that people like to feel close (to their data centres),” Martorelli said. “It’s not to say it’s impossible. I know that some people are using established software development companies in Nova Scotia, for example, so it isn’t entirely unheard of.”

Filak expects that apprehension will be exactly the thing that will keep Canadian-based outsourcing companies with American clients at a distinct advantage over their American counterparts.

“Technically they can do it. But politically they can’t do it,” he said. “Politically, the U.S. people are going to want their best infrastructure in the United States.”

Hurwitz Group in Boston is at SPC Inc. in Vancouver is at CGI in Toronto is at