A recent IDC Canada survey has found that the time is ripe for Canadian outsourcing companies to focus on the U.S. market, as statistics predict a shortage of eight to nine million IT workers globally by 2004.
Currently, about half of all global outsourcing dollars are spent south of the 49th parallel. The American market is also about two years ahead of the rest of the world, so it is a good time for Canadian companies to take advantage of a variety of factors that puts them at a distinct advantage when competing with outsourcers from India and Europe, experts said.
One of the most important factors is for Canadian companies to forge direct relations with American customers so price advantages can be passed on. "If they have to resell through a third party, conceivably it is not as compelling an offering for the customer on that side," said Dan McLean, director of outsourcing and IT utility research for IDC Canada Ltd. in Toronto. Often Canadian companies get their outsourcing contracts through an American intermediary, which in turn charges a substantial amount for its services. The end result is a cost to the purchaser similar to using an American outsourcing solution.
CGI Group Inc., the Montreal-based IT services firm, deals directly with its American clients said André Nadeau, executive vice-president and chief strategy officer with CGI. This allows the company to pass savings directly to the client.
The biggest advantage for an American company to do business north of the border is cost. In fact, some Canadian subsidiaries of large American companies have used the dollar discrepancy to their advantage when getting internal contracts.
When Sun Microsystems Inc. wanted to build porting tools, so businesses could move to a Solaris server from HP-UX or IBM AIX, it could have chosen either a Canadian or American resource centre.
"We built the case…that the cost of getting into that business was going to be cheaper in Canada than in the U.S.," said Ron Ratzlass, head of professional services with Sun Microsystems Canada Inc. in Markham, Ont. In fact, given equivalent skill sets, it is always cheaper to develop in Canada, he said. It is also very important for Sun Canada to be able to develop solutions locally for its Canadian clients so there is no sticker shock from services billed from in American dollars.
IBM, given its global reach, often outsources its own outsourcing. "We in Toronto will sub-contract work to other labs as well," said Hershel Harris, vice-president for WebSphere development and director of the Toronto lab. He said his team often uses IBM teams from China or India.
The Canadian lab in Toronto is well respected by headquarters, Harris said, so the choice was made in 1991 to develop the company's DB2 database software in Canada. Like Sun and its porting tools, IBM Canada made a business case to get the job. Though the dollar difference was not as pronounced a decade ago, it did play into their hands, Harris said.
Canadian companies can often be underpriced by developers in countries such as India, where standards often meet or exceed those of local firms, so it is important for them to focus on their other advantages. Geographic proximity is chief among them.
"It does work well for the IBM software community to have a local neighbour (Canada) developing significant software," Harris said. Something as simple as identical time zones make dealing with Canada much easier, he added.
"Application development usually requires much closer proximity to the client," Nadeau agreed. Whereas an application development project might be divvied up 50/50 with its Indian labs, something that requires less involvement, such as application maintenance, might have 80 per cent of the work done at the Indian lab.
Regardless where CGI chooses to have the work done, there is a need for clients to have faith in the quality of the work.
"By having all of our offices ISO 9001 certified…by having our two Indian centres of expertise at the highest level of software development certification, which is CMM (Capability Maturity Model) level 5, (the clients are) convinced," he said.
Other factors which can help Canadian outsourcers win contracts include geographic proximity to customers, similar business culture and a communal language.