Outsourcing guide: Canada

Many Americans view Canada almost as a 51st state. Canadians, of course, think otherwise. But this fanciful notion has a basis in reality, a fact that suggests that if you want to outsource IT services to another country, Canada is the least risky, most familiar place to do so.

The advantages of Canada vs. other outsourcing centres are many. It has the same time zones as the US, its major cities are near major US cities, English is widely spoken there, and its culture and business practices are very similar to those in the US

And there's a cost advantage over the US "We're cheap and deep," is how it's put by Bill Bergen, CEO of the Information Technology Association of Canada in Mississauga, Ontario.

Jobs, measured in Canadian dollars, usually pay about the same or a bit less than similar jobs in the US But because of the exchange rate, Canada enjoys a labour cost advantage over the US of about 30 %, estimates Peter Bendor-Samuel, CEO of Everest Group, an outsourcing consultancy in Dallas.

Canada has a number of high-tech centres. Toronto is strong in financial services, software development and mainframe technology. Ottawa is a centre for wireless and semiconductor technology and software development, while Vancouver's strength is in software development, says Vito Mabrucco, a vice president at IDC Canada in Toronto.

Jason Bremner, director of outsourcing services at IDC Canada, says that of Canada's three major outsourcing vendors, two — IBM and Electronic Data Systems — are American, while the third, CGI Group , is Canadian.

Given that dominance of US outsourcers, it should come as no surprise that doing business in Canada isn't much different from doing business in the US

"I think most US CIOs familiar with the Canadian market will admit that Canada's IT maturity and expertise is on par with the U.S.," Bremner says.

That has been the experience of Will Shelton, chief operating officer at Arbella Insurance Group in Quincy, Massachusetts The company sends data to a CGI Group facility in Montreal, where it's converted into print images that are later printed on paper as customer invoices and forms. Arbella was outsourcing the data conversion to a US vendor but was dissatisfied with the service, so it switched to CGI for better service and a cost reduction of about 40 %, says Shelton.

Companies are also going to Canada as a hedge against the political, legal, project management and other risks of placing all of one's IT in an offshore country such as India, says Jim Brewer, a vice president at IT outsourcer Keane , which is based in Boston and has operations in Halifax, Nova Scotia, and in India.

Perhaps one of Canada's strongest pluses is the comfort factor — it's close, it's familiar. "Canada is perceived as an easy way to get into outsourcing," says Brewer. "There can be a lot of discomfort when someone's systems are 10,000 miles away."

Shelton agrees. "I don't have the sorts of concerns with Canada that I do with other countries further away," he says. "We share a common culture, they're our largest trading partner, and they have a significant US presence."

Low employee turnover is another potential benefit of moving IT services to Canada. John Foreman, a vice president at CGI, says his company, which has 16,500 employees in Canada and is the country's largest IT services provider, has a turnover rate of about 6 %.

Of course, Canada does have some disadvantages. Compared with, say, India and China, Canada is pricey.

And Foreman notes that US regulations prohibit some types of data, such as information related to certain financial transactions, from being processed outside of the country. In those cases, CGI Group stores the data in US data centres.

And not everyone is enamored of the quality of Canada's service. IDC Canada's Bremner says he has found a "rather ordinary level of customer satisfaction" among US companies that have outsourced to Canada.

Other than currency risk, observers don't see any special risks to outsourcing in Canada. Shelton recommends that CIOs take the same precautions they would take when outsourcing to any country, such as spelling out the dispute-resolution process in the contract and specifying which country's laws they'll operate under. He suggests starting with a small project and expanding the relationship after seeing how well the provider performs.

Horowitz is a freelance writer in Salt Lake City. Contact him at alan@ahorowitz.com.

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