More than 75,000 Canadian IT jobs could be lost to offshore outsourcing by 2010 unless the country repositions itself as a nearshore venue and provider of IT services for U.S. and European companies, according to a study released Wednesday by PricewaterhouseCoopers.
"Offshore outsourcing of IT services is not a fad…it’s here to stay," said David Ticoll, co-author of the research called A Fine Balance: The Impact of Offshore IT Services on Canada's IT Landscape.
Although Canada has lagged behind the United States in offshore outsourcing, Ticoll said that the country is on the cusp of a dramatic increase in its use by Canadian companies.
Today there are 550,000 Canadians doing IT work. With the right actions, IT jobs could increase by 165,000. Ticoll said that 15,000 to 20,000 Canadians are doing IT outsourcing in Canada and if the country can win a three per cent market share of the forecasted global market by 2010, it will translate in a net increase of IT service jobs, instead of a loss.
"It’s part of a fundamentally new phase of globalization," Ticoll explained. "We’ve been though the globalization of manufacturing and distribution and now we are into the globalization of knowledge work.
"Because moving knowledge is much easier to move than physical plants, the globalization of knowledge work is likely to happen much faster than the globalization of manufacturing, which itself happened a lot faster than a lot of people expected," Ticoll said.
A culmination of the rise in the Canadian dollar, heightened media coverage that has created a snowball effect, and a number of global companies – specifically India-based companies – that are now moving into Canada, are just a few of the signs that this country is ready to see an offshoring buzz, Ticoll said.
He also said that many Canadian companies have already been through a first round of pilot projects that have proven successful and they are now ready to take-off on a broader scale.
The Toronto-based company undertook the research survey, which involved vendors, service providers of IT services and a number of large Canadian corporate buyers, in an effort to get a sense of the offshore market in Canada.
The driving force for saving the jobs is still falling on the nearshore arena.
"Canada already does have a market and an industry providing nearshore services to the U.S. and now, we are seeing a number of Canadian companies move offshore," Ticoll said.
Canada is a turning point, said Robert Scott, partner, IT advisory services at PwC and a co-author of the research. He said Canada must define its role on the global stage by building itself up as a global supplier of IT innovation.
The research found that cost was not the only reason companies sent activities offshore, but that quality is another significant driver of offshore outsourcing.
"The more experience that buyers have in offshore, the less they focus on cost and the more they focus on proximity…and the ability to interact," Scott said.
Scott said Canadian offshoring reports are similar to those in the U.S., with the one difference being that Canada has a heavier reliance on flexibility and ability to scale-up limited resources as important business drivers.
"Cost is still an important issue to open discussion but the ability to be flexible and to scale appropriate resources was seen by many of the Canadian participants as a major reason for looking to offshore," he added.
In order to continue to compete Canadians need to focus on high-value business-centric solutions and also use agile development technology, or a close relationship between business user and the developer, Scott said.