Quebec lags in outsourcing IT projects to third world
But firms see big potential in India, China and Vietnam

Although there are significant productivity gains to be made in outsourcing IT projects to emerging nations, Quebec companies have been slow to capitalize and risk being left behind. Those are the conclusions that emerged from an industry summit held yesterday at Montreal's Queen Elizabeth hotel.

About 175 people attended the conference, organized by TECHNOCompétences, a provincial IT sectoral committee. These included industry professionals, government officials and other stakeholders. The only thing missing was companies that actually do outsourcing.

"It's a hush-hush issue," said Sylvie Gagnon, a TECHNOCompétences spokesperson. "Companies don't want to talk about it, either because they receive government subsidies or they sell products in Quebec and do not want to be known for exporting jobs oversees."

Lyne Bouchard, director in charge of Eastern Canada for Gartner agreed.

"There are no official statistics regarding Quebec companies that outsource IT to emerging countries," Bouchard said. "But there is a lot of hype surrounding the issue right now, and even those that don't outsource, somehow feel that they should be doing it."

Gartner's parent company did extensive surveying of U.S. IT outsourcing in late August of last year and the results were impressive. Gartner concluded that by the end of 2004, 70 per cent of large U.S. corporations will be using offshore outsourcing services.

Among the many U.S. companies known to farm out work to emerging IT economies are Microsoft, Dell, EDS and Accenture. The threat to Quebec companies is that if the competition gets leaner and meaner and they do not respond, they risk missing the boat.

According to Bouchard, the benefits of outsourcing come down to cost, quality and enthusiasm.

"Our studies show that for a typical software development project that includes testing and debugging, the cost savings for U.S. companies that outsourse to India are roughly 43%," Bouchard said. "That's a lot of money."

But money isn't the only factor. Gartner survey respondents claimed that Indian software programmers also worked harder, better and with more enthusiasm than their U.S. counterparts, in part because many felt fortunate to have lucrative employment.

Most TECHNOCompétences conference speakers agreed that Quebec companies have more to gain from opening up to the world and than looking inward and trying to put up barriers.

But according to Serge Matte, president of Sopratech, a consulting firm that offers companies help in outsourcing IT development projects to China, Quebecers need to change their mindset.

"Quebec companies think nothing about doing a SAP installation, even though it's a German supplier," Matte said. "Nobody says that you are outsourcing jobs when you buy SAP and they shouldn't say that you are exporting jobs when you do software development outside the country either."

In many cases outsourcing protects jobs over the long term because it makes companies more competitive on a global scale Matte said.

Although Matte has not inked any deals yet, interest among Quebec companies in China is high and he is working on several request for proposals.

While India and China tend to be seen as the best outsourcing candidates for IT jobs, another far east country, Vietnam, which has a strong French speaking legacy as a result of its colonial past, holds a strong attraction for Quebec firms.

One Quebec company that does a lot of outsourcing work in the third world is CGI Group. The company currently operates centers in Bangalore and Mumbai India, which service U.S. clients.

CGI took over the centers as part of its Cognicase acquisition and the company is currently trying to convince more Canadian companies to outsource work there.

According to André Nadeau, CGI Group's vice-president in charge of strategy, India offers numerous advantages including cost savings averaging 30%, an existing base of 500,000 skilled IT professionals, who are already working on outsourcing contracts and another 60,000 to 70,000 professionals coming on stream each year including numerous Ph.D.s

Ironically, Quebec companies, like Canadian firms may win more than they lose in the outsourcing game.

Nadeau is quick to trumpet a 2003 study by EDS subsidiary AT Kearney, which compared numerous countries that do IT outsourcing work. The criteria examined included project costs, the business environment and available workforce. India, not surprisingly came in first as the best place to do business, but Canada was tied for second, along with Brazil.

Since Quebec's labor costs make it one of the best places to do business in Canada, perhaps it's not surprising that Quebec firms have been slow to get on the outsourcing bandwagon.

 

 

peter@peterdiekmeyer.com

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