Market research firm ICD says that, thanks to IT offshoring practices, many business projects have taken off when they wouldn’t have otherwise, and that it is at times necessary to offset a skills shortage in the North American market.
This is one of several key findings from ICD Corp.’s report released last month titled The Economic Impact of IT Offshoring on Canada: An Executive Viewpoint.
Overall, between 2001 and 2013, IT offshoring contributed $15.1 billion to Canadian businesses, mainly in cost savings, despite a loss of 12,800 jobs worth an estimated $4.1 billion in compensation, according to the report. These figures are projected to grow by an additional productivity benefit of $17.8 billion by 2018, and a further reduction of 4,450 jobs.
“Buyers here in Canada are increasingly looking at offshoring as a capacity play rather than a cost savings play.” said Mark Schrutt, research vice president of services and enterprise applications at IDC who authored the study. He explained that with IT unemployment at 1 to 2 per cent, it’s less about cutting back than about trying to grapple with the skills gap in IT positions here in North America.
The US Department of Labour in 2012 identified IT as the third hardest sector to fill positions.
According to Schrutt, offshoring was a $3 billion market in 2014, and is expected to grow, with primarily India, the Philippines, South America and the Caribbean islands meeting the demand. Two-thirds of the revenue is driven by western-based firms, like IBM, CGI Group, Hewlett Packard and Capgemini. The rest, he said, comes from companies in India. Companies that have outsourced locally before are now moving towards an offshore model, while those with offshore experience are driving productivity even further, he said.
“It is pretty widespread,” Schrutt told CDN. “Across the board … about 40% of Canadian companies outsource to a certain level, and 4 out of 10 of those are offshore.”
In recent years, offshore work has shifted away from “customer-facing activities” such as call centres to back-end IT operations. Meanwhile, onshore staff has increasingly focused on front-ending these operations such as project management and application design – a move that Schrutt said has “improved the work” overall.
While Schrutt said that as one of the first of its kind, the study recognizes that offshoring is a “sensitive topic.”
“The net number was a productivity gain minus the compensation and job losses,” Schrutt said, explaining that the results are nevertheless favourable – projected to add up to a cumulative positive economic impact on Canada of $24.1 billion between 2001 and 2018. Without offshoring, “many of these projects would not have gone ahead. The dollars would not have been spent, the people would not have been employed, and the benefits of those projects would not have been experienced.”
“I actually came into this thinking that in the long term that IT offshoring would be bad for the Canadian IT marketplace, that we would not be able to innovate on the same level as we could without it,” said Schrutt. “Do we have the right IT marketplace to support Canadians’ needs in the future? I would say yes.”