IT sector explores impact of Canadian dollar’s rise

Canadian IT managers might enjoy doing some cross-border shopping right about now, but for their employers, the rising dollar might bring nothing but pain

Industry group the Canadian Advanced Technology Alliance recently released a survey that focused on how the manufacturing sector may deal with the impact of the currency’s unusually high valuation. The Internet-based poll results said that 37 per cent of firms will close or shrink their current production facilities, and another 21 per cent will consolidate their plants. They cited pricing pressure from cheaper imports and a third were worried about keeping up with new orders. Maclean’s, meanwhile, recently published an article suggesting that the soaring loonie is largely the result of a U.S. financial crisis, one that could drag firms here into another recession.

If IT departments want to be proactive enough to think about what the dollar’s rise means to them, it might be helpful to look back at the last time we were in the opposite situation. It wasn’t that long ago: in 2002, the Canadian dollar plummeted to near-record lows of US$0.62, and our sister publication NetworkWorld Canada explored the affect it would have on equipment purchases. Its conclusions: that enterprises might be reluctant to upgrade, and that U.S. firms might be more likely to set up shop here.

The latter line of thinking has continued to play out over the last couple of years, with Canada selling itself as a “nearshore” destination for firms that would otherwise look to India for their outsourcing needs. As the dollar reaches par with the U.S. greenback, those economic advantages might be severely diminished.

On the other hand, does a higher Canadian dollar mean that enterprises will be more likely to purchase new servers from U.S. firms? Companies here don’t tend to be that reactive, and IT equipment expenditures tend to be more thought-out than the kind of bargain buying we do for clothes and personal items. (According to the International Herald Tribune it has, however, spurred e-commerce sales, which could place greater demand on the online payment systems managed by Canadian firms with operations in the States, or vice-versa.) Will it mean that more Canadian firms set up shop close to home rather than focusing (as they usually do) on the larger, more lucrative U.S. opportunities? Maybe, although it’s hard to tell if the currency situation is just an isolated fluctuation or a real long-term trend.

For most IT managers, if the dollar has any impact on what they do, it will likely be more indirect, affecting the business as a whole. If the IT department is as aligned with the objectives of the overall business as it’s supposed to be, however, that impact could be significant. It could affect their budget, if cutbacks are necessary. Or it could challenge them to make more strategic use of IT to counteract any negative effects. Technology is supposed to bring greater efficiencies, increased productivity and more cohesion between companies, their partners and their customers. As they struggle to live within the new economic reality, enterprises will soon discover whether their IT is giving them their money’s worth.

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Jim Love, Chief Content Officer, IT World Canada

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