The offshore option

The flight of IT jobs from the U.S. to countries with cheaper IT talent has garnered headlines south of the border, but isn’t ringing many alarm bells in Canada. Yet.

While Canadian companies may not be currently outsourcing IT functions overseas at the rate of their U.S. counterparts, that doesn’t mean they won’t be lured by less-expensive labour down the road. If Canadian IT workers want to ensure their jobs don’t fly away, they’ll need to work on maintaining in-demand certifications and aiming for strategic, rather than operational, positions.

Most observers of the Canadian IT market don’t believe offshoring — the practice of outsourcing job functions overseas — has attracted many Canadian businesses looking to cut costs.

“It’s not having much of an impact now with respect to IT,” said Dan McLean, an analyst with technology research firm IDC Canada Ltd. in Toronto. “I think most of the offshoring you see taking place in Canada in IT is project-related.”

Greg Lane, president of the Canadian Information Processing Society (CIPS), an association representing over 8,000 Canadian IT professionals, said offshoring isn’t currently considered a critical issue by CIPS members.

“It’s not at an extent where we have to panic about it,” he said. “It’s not even at an extent where we have to take a specific public position on it. But it is something we’re talking about.”

One reason why Canadian companies don’t outsource their IT functions overseas as commonly as U.S. firms is that Canadian IT workers are generally cheaper than U.S. IT employees. For example, a salary study from Foote Partners, a New Canaan, Conn.-based management consultancy and IT workforce research firm, found that a programmer with between two and four years of experience made an average of US$39,000 a year in Canada, compared to US$69,000 in the U.S.

Another factor inhibiting offshoring in Canada, noted IDC’s McLean, is that most offshore providers are focusing their efforts almost exclusively on the U.S.

“The U.S. is the market with the largest services opportunity in terms of market size,” he said. “It accounts for about half of the worldwide market for outsourcing.”


Until now, Canada has probably added more jobs as a result of offshoring than it’s lost. Many U.S. companies have outsourced parts of their IT operations, including application development, call center and help desk functions, to Canada — a practice referred to as nearshoring. Canada’s appeal is due in large part to the disparity between the wages for IT workers in Canada and those in the U.S.

Canada also offers U.S. outfits a well-educated workforce and fluent, English-speaking workers. Finally, managing a relationship with a Canadian outsourcer can be simpler than managing a relationship with an overseas vendor. A flight to a major Canadian city from the U.S. takes a few hours at most, while trips to outsourcers in Asia can take days.

Despite the recent rise of the Canadian dollar, U.S. firms are still looking to the Canadian outsourcing market, said Christopher Drummond, director of marketing with CNC Global, a Toronto-based technology staffing firm with offices across Canada.

“Our customers are telling us Canada is still benefiting from its status as a nearshore alternative to outsourcing,” he said.

A matter of time

Despite the relatively low wages of Canadian IT workers, it’s only a matter of time before more Canadian companies begin looking overseas for firms to handle some of their lower-level IT functions, observers say.

A study IDC Canada conducted in 2003 showed few Canadian firms were actually offshoring, but it also showed there was a lot of interest, McLean explained.

“A lot of people are kicking the tires,” he said.

While Canada may have a cheaper IT workforce than the U.S., it’s more expensive than a lot of overseas options. The Foote Partner salary study showed average salaries in India for programmers with between two and four years of experience coming in at around US$7,800 a year and those in China at US$8,100 a year — a pittance compared to the US$39,000 the average Canadian programmer made.

David Foote, president and chief research officer for Foote partners, believes offshoring is already having an impact on the Canadian market.

In 2003, Foote said offshoring began to erode salaries for some IT workers in the U.S. and Canada. For example, the firm’s quarterly salary studies showed that stand-alone applications development skills pay slid 8.5 per cent in 2003 and application development certifications lost almost 18 per cent of their value since 2001.

“Companies are outsourcing to cut costs,” he said. “If your competitors can come in and offer a similar product to you at a lower cost, you’re in trouble. You’ve got to look for ways to lower your costs. We survey both Canadian and U.S. companies and the Canadian companies in the surveys are looking to reduce costs just like those in the U.S.”

Toronto-based Arackal Digital Solutions is an outsourcing firm that’s already taking advantage of the offshore option. The company uses a combination of a local presence in Canada, backed by overseas assets, to offer companies a cheaper outsourced solution.

Kevin Yan, Arackal’s CEO, doesn’t think offshoring is causing any big concerns in Canada right now. “I don’t think Canadians can call foul and be a beneficiary of the U.S. nearshoring business at the same time,” he said. “So I don’t think Canadians are talking about the issues as loudly as they are in the U.S.”

As offshoring in Canada grows, Yan believes concern over the practice is likely to increase. But, he notes, that in a typical offshoring arrangement, not all jobs leave the host country. “I think there will always be onshore resources in Canada to complement anything that gets taken offshore,” he said.

For example, Yan said Arackal has been approached by a pair of network management companies, one based in the U.S. and one in Canada, to handle some monitoring capabilities offshore. “What offshore providers like ourselves can offer to these companies is lights-out operations monitoring,” Yan said, where the offshore operations are able to be up and running when the North American operation is down, because of the time zone difference.

Even if all the monitoring was eventually handled offshore, there would still be a need for some IT staffers in Canada, Yan noted. “If there’s a problem and someone needs to be dispatched, that would need to be done locally,” he said. “You can optimize your costs by augmenting your onshore resources with some offshore resources. But you can’t completely remove the onshore resources.”

What it means for jobs

So what job functions are likely to float offshore and which are likely to remain at home?

Application developers, application maintenance, call centre support and database administrators are the job titles most likely to be offshored, said Foote. Business technologists, business analysts, project managers, security experts, systems and network administrators and network architects are jobs that are likely to remain in Canada, he added.

IDC’s McLean believes any operational job is ultimately in danger of being offshored. “If I’m a network administrator and my job every day is to be responsible for monitoring and managing, that’s a risk,” he said. “If I were a network administrator I’d be looking at gaining skills that would let me do more in the way of designing networks and being able to have a skillset where I can understand the business imperative and translate that into figuring out the appropriate type of networking solutions that would address those business issues.”

Ultimately, it’s not just offshoring that’s a threat to operational IT jobs, McLean noted. Domestic outsourcers, who can handle monitoring and management from a remote location with a minimum of staff, and smarter networking gear are also reducing the number of available operational positions.

Foote concurred, noting that the profile of the typical IT worker has changed over the years and will continue to change. The days of the pure technologist huddled alone over a terminal in the bowels of a corporation are past. IT workers who want to stay employed need to be more multi-dimensional, he said.

“You have to be much more marketing-oriented, much more collaborative in how you do things,” he explained. “There are very few pure play technology jobs anymore in IT. You’ve got to be sensitive to your customers. You’ve got to understand what your customers want.”

Five years down the road, Foote said IT is going to be a much more outsourced business, handled by a mix of domestic and offshore outsourcers.

“The demand for IT services isn’t going away,” he said. “But what we found out when we did a large study of the Fortune 1000, which was looking at what the workforce would look like in 2006, was that employers were saying they believed 35 per cent to 45 per cent of the full-time jobs would go away. They’d be spending more on IT, but they were planning to cut their workforce.”

The IT workers still employed directly by companies in central IT departments are going to have to continue to develop more business skills, Foote said.

“If you walk into a company now, it’s often hard to tell who is an IT worker and who isn’t,” he said. “The IT workers have advanced degrees in business. They’re pulling salaries out of an IT department and some of them are not particularly technical at all. But they’re extremely good at working between technology and business.”

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Jim Love, Chief Content Officer, IT World Canada

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