Technologies such as cloud computing and economic trends such as the recent global recession are pushing more Canadian companies to take a dip in the offshore outsourcing scene.
Already estimated as around $5.5 billion, the overall Canadian IT outsourcing market is expected to grow by as much as 3.8 per cent from 2009 and reach $15 billion this year, according to IDC Canada.
Canadian companies have comparatively less experience in global service delivery compared to U.S. businesses however local financial services firms are leading the charge in the current off shoring trend.
Canada still lags the United States in total outsourcing headcount but with greater pressure on CIOs to cut spending, outsourcing is bound to gain momentum, according to Sebastien Ruest, vice-president, services 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 expected to grow by 5.4 per cent by 2010,” Ruest said
He said close to 35 per cent of Canadian companies are using off shore services.
Traditional outsourcing vendors may still be the preferred vendors of choice, but they have lost considerable market share to pure play providers, teclos and specialty BPO players, according to a recent outsourcing survey conducted by IDC and the Centre for Outsourcing Research and Education (CORE). According to the study,
Pure Play providers have tripled their share of the market to 6 per cent in the past four years.
The study said many Canadian firms still prefer Western-based outsourcers and such firms are expected to capture 70 per cent of the new off shore work in 2010.
Despite this preference for Western-operated firms, location appears not to be a major issue for Canadian clients. An India-based provider told researchers their customers are “are not very demanding regarding geographic location…they don’t really ask”.
A Canadian advisor said: “Companies are not concerned where the resources it. They are more concerned about the pricing and relationship model.”
Concerns about global outsourcing include:
- Lack of control over resources
- Managing across large distances and time zones
- Privacy and security
- Accountability
- Labour turnover
- Language and communication
- Quality of work
For companies considering off shoring, IDC and CORE has the following recommendations:
- Off shoring is not an all-or-nothing proposition; take a portfolio approach
- Be open to new delivery and and pricing models
- Don’t spend too much time preparing for change
- Know what your outsourcers is doing
- Understand, determine and manage potential risks
- While off shoring introduces certain flexibility, also consider the inflexibilities of the model