More than
three-quarters of businesses today are using outsourcing companies
to perform vital business functions, according to some estimates.
Offshore, nearshore, bestshore, rightshore . . . . Which shore
is it for a successful operation?
"It is
getting a little crazy with the crosscurrents," said Roger
Byrnes, vice president of delivery for New Jersey-based Computer
Horizons. Founded in 1969, it provides a variety of services and
solutions for the IT industry, including IT staffing and application
outsourcing.
In 2002, when his company opened its Montreal office: "The
hysteria was around outsourcing, with everyone trying to go as
far offshore as possible," he said. Many customers dismissed
Computer Horizons' interest in the Canadian city, pointing to
India as the way to go.
An idea whose time is now
Computer Horizons was ahead of its time, it seems. Today nearshoring,
the outsourcing of work to service providers in neighboring countries,
is more than a buzz word. It's considered a level-headed way for
companies to enjoy cost savings along with reliable and nearby
outsourcing options.
Such major players as Computer Science Corporation, Electronic
Data Systems and IBM engage in nearshoring, as do firms such as
Keane and Compuware.
"Nearshoring isn't a new idea. It's attracted more attention
in the past year because of the realization there's more at stake
than just saving on labor costs," according to Byrnes.
A 2003 Computerworld/InterUnity Group study confirmed that, when
it comes to outsourcing partner selection, criteria involved much
more than cost. Several were deemed significant decision factors
beyond the focus on IT hourly service rates.
Skill competencies led (75%), followed by industry knowledge (59%),
flexibility on contract terms (55%), general references and reputation
(43%), evidence of quality results such as Capability Maturity
Model CMM certification (56%) and company knowledge through prior
engagements (44%).
A March 2004 study undertaken by IDC found Canada could offer
a price point roughly 30 percent lower than similar US-based IT
services.
Near . . . and less dear
"The bottom line is always cost," said Byrnes. True,
wage rates in India can be as low as one-tenth of what a comparable
American IT worker would earn. "But there's something known
as total costs of engagement. We've proven in the past that sometimes
it really is cheaper to do business in Montreal than in India.
If you look at factors such as the ratio of on-site versus off-site
support required, complexity of work and required industry experience,
many times a city like Montreal will come out ahead."
The KPMG 2004 Competitive Alternatives Study, for instance, places
Quebec first for low overall operating costs, ahead of other Canadian
and U.S. regions, and of other G-7 nations.
Nearshoring
organizations can offer the benefits of outsourcing operations
offsite, with the added attraction of convenience. Similar time
zones provide enormous advantage in terms of day-to-day operations
and communications. For some companies that require close interaction
between the U.S. parent and the outsourcing company nearshoring
is an excellent solution. And in a time of rising travel costs,
physical proximity becomes a cost advantage as well.
"Factoring travel costs plus increased productivity, we have
actually competed against offshore companies and provided a lower
cost solution in Montreal," said Byrnes.
Everybody
into the pool
"Canada is a low-risk, high-return location, and an ideal
place to do true creative product development," said Paul
Gasparo.
Gasparo is co-founder and head of MapleWorks. The company provides
software development outsourcing services for telecommunications
industry clients, mostly in the U.S. Its Gatineau, Quebec office
is situated in a region often called Canada's silicon valley.
The availability of experienced and talented domain experts sealed
the deal for him.
WELCOME
TO MY WORLD SHORE
And if you're the third largest provider of IT services in
the world you can take it a step further.
"We're working on what we call a world sourcing model,"
said Serge Bronsard, executive director for CSC Canada in
Montreal. "Which means offering the client the ability
to do the work where it's most advantageous for them."
And that might mean anywhere in the world, a boon for clients
who 'follow the sun,' working 24/7 with offices in successive
time zones.
CSC Canada's Montreal office employs 600, and also maintains
centers devoted to remote infrastructure support, help-desk
activities to clients around the world. It is also the location
for the company's Center of Excellence for ERP development
and support.
How does a country like Canada fit into the mix? Bronsard
points to Montreal's well-educated, multicultural and multilingual
work force, with a North American work ethic and standards,
who are only a time zone or two away from a company's home
base.
"There's a great advantage to having access to a number
of quality well-qualified resources, particularly in the application
and maintenance areas," he said.
And the ability to provide those services at a price that
is lower than other areas of the world. This is due largely
to the cost structure and the value of the Canadian dollar.
Not to mention incentives from the Quebec government.
"It adds up to being able to provide the customer with
the ideal, even innovative, resources at an extremely attractive
price," said Bronsard. |
A.T. Kearney
developed an Offshore Location Attractiveness Index to measure
these factors. Canada may trail China and India when it comes
to overall costs. But when such factors as manpower quality are
taken into account, Canada ranks second in the world.
"The Montreal-Ottawa region in particular is rich in people
who are experienced and expert
in developing software products. Which means they not only understand
the technologies, but also how to bring products to market that
people will buy. That was the determining factor in our locating
here," he said.
Deeper
still
Of course, the area long known for its deep pool of technologically
savvy people. Montreal alone contains 4 major universities, two
English-language and two French, plus numerous research centers.
When Motorola Canada Limited decided to locate its Montreal Software
Development Center in the Multimedia City in 2001, company president
Frank Maw cited the "synergy with the local universities,
and the high-tech infrastructure already in place" as deciding
factors.
When it comes to outsourcing you need more than raw talent. The
historic presence of such companies as Bell Northern Research,
Nortel and Marconi set a precedent. Today there are 400 suppliers
of telecom services, including wireless players such as Ericsson
Communications, Motorola, Mitec, Interdigital and VoiceAge.
"Our employees average 14 years of experience in the industry,"
said Gasparo. "In many offshore locations, the average is
closer to three years."
Cultural congruity
Gasparo says Canadian workers are on the same page in terms of
development culture. There are virtually no language or cultural
barriers. "It's almost exactly the same as in the United
States. Which makes for seamless transitions, and saves time and
money for companies both in the start-up and later phases,"
he said.
"The bottom line is always about balancing risk and client
needs," said Reinhard Neubauer. He is in charge of investment
prospecting in California for Invest Quebec. The provincial agency
helps international businesses locate in Quebec, and supports
expansion and investment projects.
He's heard the many concerns voiced by those engaged in offshoring
over the years. Among them are such issues as legal difficulties
and intellectual property rights protection among others.
"The nearshoring option offers organizations of outsourcing
operations attractive alternatives, while solving these serious
concerns," he said.
Links:
A.T. Kearney study: www.atkearney.com/main.taf?p=5,3,1,75
KPMG 2004 Competitive Alternatives Study: www.competitivealternatives.com
Invest
Quebec (IQ) has a mandate tailor-made to assist innovative businesses.
It is a public agency with a highly successful record in promoting
domestic investment, attracting foreign investment and supporting
businesses at every stage of their growth. IQ manages unparalleled
tax incentives and, as a financial institution for business, it
offers a full-range of financial options and tools. IQ creates
customized packages to meet the specific needs of each business,
and can help with anything from site selection to finding local
partners. Visit www.investquebec.com
or contact Nathalie Rivard at (310) 209-3332 or via email: nathalie.rivard@investquebec.com
Susan Kelly
is a frequent contributor on business-related subjects for various
publications in the U.S. and Canada, including Montreal's The
Gazette newspaper and Trade and Commerce magazine, Winnipeg.
