Source: Computerworld, September 15, 2003

Country Analysis: Canada

Canada's near-shore outsourcing software services sector can logically be seen as a lower cost extension of the US IT market.  The dominance of the US market is seen in the fact that Canada's top two outsourcing software services exporters - IBM and EDS - are both US firms.  Canada's dependence on the US market is further highlighted by the fact that eighty-four percent of all information and communications technology products and services are exported to the US.  Although Canada exported CN $ 4,800 billion worth of software and computer services in 2002¹, most of that was US firms exporting goods back into the US.  Canada itself has very few large outsourcing software services companies.  The advantages that Canada has over other offshore outsourcing sites are many.  Canada has the same time zones as the US, its major cities are located near US major cities, English is the primary language in Canada, and its culture and business practices are similar to the US's.  All these advantages add up to a familiarity that many corporate decision makers find comforting when choosing a outsourcing partner for software development.  Another huge advantage for Canada is that NAFTA has created a large trading alliance between the US, Canada and Mexico.  This trade zone allows the free flow of people, goods and services between the three nations and establishes a compatible legal framework for protection of property in all three nations.  A final advantage Canada has is its political stability; this allows it to attract those companies which want to hedge against the political, legal and project management risk of placing all of one's software development in one nation such as Russia. 

The only significant disadvantage that Canada has over other outsourcing nations is that it is not located in some far-away offshore locations.  As such, Canada's costs are similar - though a bit lower than the US's costs.  As such, Canada cannot offer low-cost wages that nations such as China, Russia and India can offer.  The only major risk that US companies face in outsourcing to Canada is currency risk - especially a weak US currency.                   

Human Capital

The Canadian IT industry boasts a large supply of 240,000 IT professionals.  However, Canada's educational system produces only about 6000 new software engineers each year².  This leaves a large gap which is filled by a steady influx of immigrants into the country each year.  The average Canadian software programmer earns approximately USD $28,200 a year³, with senior level developers earning over USD $80,000 a year⁴.  With Canada's higher costs, most Canadian programmers do not focus on the low-cost maintenance level activities that programmers in China and Philippines work on.  Instead, Canadian programmers generally focus on higher value-added design and development work for the export market.

Telecommunications Infrastructure

Canada has an excellent telecommunications infrastructure with the penetration rate for fixed-line connections at almost 70 (per 100 population) for a total of almost 22 million lines for the entire country⁵.  The mobile-phone market is less advanced than many European nations with 11.88 million mobile phone users in Canada in 2002.  In terms of Internet use, Canada is a very wired country, with about 5.8 million homes or about 49% of the population connected to the Internet⁶.  Canada also had the second highest rate of broadband access among developed nations with more than six broadband lines per 100 people. 

Government Support

The Canadian government has long recognized the importance of the software services sector as a major contributor to the overall health of the economy.  As such, Canada has a tradition of supporting R&D in both academia and industry.  Government grants and tax breaks play assist companies in software development programs that might otherwise be deemed too risky. 

Industry Association Support

Canada's major software industry association is the Information Technology Association of Canada (ITA).  ITA's primary mission is to promote, lobby and consult with the software industry and Irish government regarding matters related to the Canadian IT sector.  ITA also provides information and updates on the Canadian IT industry and sponsors industry conferences in Canada.

Regional IT Cluster

Canada's software services sector is clustered along the US border with concentrations in Vancouver, Calgary, Ottawa, Toronto, Montreal and Halifax.  These major Canadian cities have the advantage of a large pool of existing technology companies, a relatively large supply of labor, good telecommunications infrastructure and are home to major university and research centers.