Offshoring unpopular among Canadian firms: study

Nearly 90 per cent of Canadian organizations surveyed have no appetite in outsourcing things like payroll and employee benefits to overseas locations

A majority of Canadian firms have no interest in outsourcing business processes such as payroll and employee benefits to overseas locations, according to a recent Ipsos-Reid study.

The study found 88 per cent of Canadian organizations interviewed said they were not willing to outsource business process outsourcing globally.

“We believe this overwhelming response may be biased due to the influence of current political and economic conditions, and we suspect these conditions may dissipate in the near term,” said Lise Dellazizzo, vice-president of information technology at Ipsos-Reid. “However, the fact that such a significant percentage of companies expressed this concern means that it is an issue at present, not matter how temporary.”

The desire to retain development jobs in Canada was revealed as one of the important inhibitors to global outsourcing, with 32 per cent of Canadian businesses indicating that as a key reason in opposing overseas outsourcing.

The study suggested the next two years will be of critical importance for providers who already have an outsourcing relationship with clients. Indications are that the number of companies that outsourced many key services in 2003 will decrease in 2005, but the percentage of spending allocated to outsourcing will increase over this period.

Other findings of interest from the study:

Business process outsourcing (BPO) is on the rise, as anticipated. Of all businesses surveyed in this study, 20 per cent currently outsource and 28 per cent plan to outsource BPO within the next 18 months. Adoption trends indicate a migration towards increased adoption in the large business segment in 2005 and a decline of net new BPO outsourcing in the small business segment within the next 18 months. Consulting companies have the greatest mindshare with buyers when it comes to the provision of BPO services.

The applications sector is a market coming of age. Outsourcing as a percentage of spend will increase by six per cent in the application services sector by 2005. Migration trends indicate that buyers are likely to outsource deeper and broader either with existing providers or through existing contracts, by expanding current selective application outsourcing contracts or by incorporating application-related services into larger IT outsourcing agreements.

Software vendors may need aggressive strategies to capitalize on a buyer environment that is shifting towards outsourcing in light of an anticipated decline of 13 per cent in spending in the applications sector, coupled with an increase of six per cent in outsourcing for this same sector by 2005. It is perhaps more critical now for software vendors who have not already made the transition to take the plunge and make serious inroads in the Canadian application outsourcing market, either directly or through partnership.

Integration is a major issue for Canadian businesses. The lack of process and systems integration expertise surfaced as the leading inhibitor when integrating new technology with existing IT. A total of 43 per cent of companies indicated this was a major challenge.

The study, “The IT Vendors Guide to Customer Economics”, was launched in February 2004 with the participation of Borland Software, Hewlett-Packard, IBM, SAS and TELUS. A total of 603 businesses across Canada participated in the study.

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