IDC: Offshoring IT keeps Canadian firms competitive

When IT jobs move out of Canada, they often leave better ones behind, says an industry analyst.

For the first time, IDC Canada says it has found that more than 50 per cent of the companies it surveyed are outsourcing over 10 per cent of their application and infrastructure support tasks, up from 45 per cent a year ago.

Offshoring, which refers to hiring or contracting people for IT services abroad (as opposed to outsourcing in general, which is also done domestically) is a business worth between $2.5  and $3 billion in Canada, says Mark Schrutt, director of services and enterprise applications at IDC Canada Inc.

It’s certainly a strategy that’s been proven to give bang for your buck. Offshoring to India is a prime example: a large workforce of highly skilled young IT professionals willing to work at a fraction of the cost of their Canadian counterparts makes it an ideal place to look for bargains.

Offshoring really began to take off in the 1990s, fueled by the demand for large amounts of low-cost resources to do work that wasn’t adding any value, says Jason Trussell, senior vice-president and Canadian regional manager at iGATE Inc., a major provider of outsourcing services worldwide.  “But once people saw that they could get some of this remediation work done out of India then it transitioned into ongoing development, maintenance,” he says.

Trussell estimates that clients of his that outsource development and maintenance jobs to India save an average of 30 to 40 per cent compared to the cost of having these services performed domestically.

The quality of the work, meanwhile, is “on par” with what the companies could expect within Canada, according to Schrutt.

However, says Trussell, offshoring these IT jobs isn’t merely about saving money. Eventually, it’s going to become a matter of economic necessity in Canada.

“People are not going to go to an India, Mexico or China if there wasn’t some financial benefit,” says Trussell. “But the reason that they’re going to those places isn’t purely because of the financial benefit.”

Part of the reason is simply a shortage of IT professionals in Canada, he says. With a very low rate of unemployment in the industry, it’s a seller’s market. Not only is the workforce shrinking, but it’s also getting older, he notes. Companies are “not going to be able to sustain that domestically and if they do, it’s going to become very expensive,” he says.

Offshoring is a sometimes controversial subject within Canada, especially amid a shaky economic climate. However, Schrutt suggests that within the IT industry, outsourcing is filling a critical need to have many low-level IT roles filled.

Sending these jobs abroad doesn’t necessarily take work away from Canadians, he says, given that we’re often unable or unwilling to do that work, or only willing to do it at prohibitive rates. “Companies just cannot get the right resources at the right time at the right cost,” he says.

And offshoring can ultimately create a new benefit for the economy, opening up new positions at home based on growth of the workforce abroad, Schrutt adds.

“Outsourcing can help create opportunities that didn’t exist before,” says Trussell. Recruiting more bodies in another country can “upskill” Canadian IT workers, boosting them into higher level managerial positions, he says.

“The jobs are slightly different than what they may have been before, but it actually is an economic addition, not necessarily a detractor from the economy and from the employment landscape.”

It’s a feeling echoed by Schrutt. The demand for IT services is outpacing the supply, he says, meaning that organizations have to compete with one another for the cheapest manpower. “In that essence, if we’re more competitive, more productive, have higher revenues at Canadian companies and higher margins, then we can expand and hire more people locally as well as abroad.”

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