Canadian outsourcing will grow in 2010, says IDC

Outsourcing practices are expected to grow in 2010, according to a recent Web cast from IDC Canada, the Centre for Outsourcing Research and Education (CORE) and Prima Management Consulting on the impacts the recession has had on outsourcing in Canada.

According to IDC forecasts, the overall Canadian IT outsourcing market is expected to reach nearly $15 billion in 2010, which represents a growth of about 3.8 per cent from 2009, said Sebastien Ruest, vice-president of service and technology research at IDC Canada.

“With the chipping away of the traditional outsourcing model, alternative outsourcing models such as remote infrastructure management, cloud and utility computing are forecast to grow by 5.4 per cent in 2010,” said Ruest.

IDC expects financial services firms will lead the way, market interest in business process outsourcing (BPO) to grow, further increases in global offshoring and challenging economic conditions ahead in 2010, he noted. The constraint of capital will continue to drive CIOs to conserve cash and avoid risk-taking by looking only one to two years down the road, he said.

Other 2010 trends highlighted by Ruest include cloud-delivered services increasingly being seen as a means to drive better value in IT and HST (harmonized sales tax) creating some hesitation in the outsourcing sector. BPO will see the largest gain and cut in spending this year, he said. Ruest also speculates high interest in outsourcing from the manufacturing industry.

The recession fueled the need to reduce operating costs, which increased outsourcing demand, and recent outsourcing activity shows strong signs that companies are building agile, cost-effective platforms to improve their competitiveness, he said. “In summary, 2009 was a strong year for outsourcing in Canada, which is creating a positive market for 2010,” said Ruest.

Canada will expand its adoption of global outsourcing, but continue to lag behind the U.S., according to Frank Hart, president of Regina-based Prima Management Consulting. Hart also expects the number of RFIs and RFPs to increase in 2010 and sees BPO as “the next frontier” for global sourcing.

What’s happening is a convergence of business models between traditional Tier 1 and India-based firms, said Hart. India-based firms are starting to win larger-scale Canadian ITO contracts and growing six times faster than traditional Tier 1 providers in ITO, he said.

Canadians are typically slow to adopt global outsourcing, Ruest pointed out. Canadian companies have comparatively less experience with global service delivery relative to U.S. business and seem more agnostic about global delivery location choices, he said.

But the Canadian preference for outsourcing to Western Tier 1 firms is expected to change and more Canadian businesses will begin to look at pure-play providers including India-based firms, said Ruest. Pure-play providers have tripled their share of the market to six per cent in the past four years, he noted.

The upcoming demand for new ICT employees, a result of retirements and industry growth, is driving the potential for global offshoring, according to Ron Babin, director and assistant professor at Ryerson University’s Ted Rogers School of IT Management.

Canada will see a shortfall of 162,000 positions in the next five years, which is why outsourcing is very important, said Babin.

Follow me on Twitter @jenniferkavur.

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