No, Canada! Dollar's Decline Undercuts Near-Shore Option - InformationWeek

InformationWeek is part of the Informa Tech Division of Informa PLC

This site is operated by a business or businesses owned by Informa PLC and all copyright resides with them.Informa PLC's registered office is 5 Howick Place, London SW1P 1WG. Registered in England and Wales. Number 8860726.

IT Leadership // IT Strategy
04:45 PM

No, Canada! Dollar's Decline Undercuts Near-Shore Option

The dollar's decline undercuts Canada's advantage as a near-shore outsourcing alternative

If the hockey strike weren't bad enough for those north of the border, there's this: The declining U.S. dollar is making Canada less attractive as an outsourcing destination. "The whole cost advantage has almost been wiped out," says Atul Vashistha, CEO of outsourcing advisory firm neoIT.

U.S. businesses used to save about 20% of IT costs by outsourcing to Canada. They opted for its proximity and cultural similarities over greater savings in India. But with the Canadian dollar rising more than 20% against the U.S. dollar in the past two years--it stood at about 84 cents last week, compared with 63 cents two years ago--more U.S. companies likely will move work to India, Vashistha says. The advantage has been mostly currency driven, he says. A U.S. and a Canadian programmer both can earn $30 an hour in local currency, but the exchange-rate difference has made the Canadian cheaper.

As the Canadian dollar approaches parity with the U.S. dollar, the advantage is evaporating. The Indian rupee is relatively stable against the dollar, and Indian programmers are cheaper regardless of currency fluctuations. Because IT-service providers generally absorb the cost of currency shifts, Vashistha says, they'll likely push customers to India, "particularly if the [U.S.] dollar remains relatively weak." An EDS spokesman confirms that EDS already is moving some work from Canada to India.

We welcome your comments on this topic on our social media channels, or [contact us directly] with questions about the site.
Comment  | 
Print  | 
More Insights
CIOs Face Decisions on Remote Work for Post-Pandemic Future
Joao-Pierre S. Ruth, Senior Writer,  2/19/2021
11 Ways DevOps Is Evolving
Lisa Morgan, Freelance Writer,  2/18/2021
CRM Trends 2021: How the Pandemic Altered Customer Behavior Forever
Jessica Davis, Senior Editor, Enterprise Apps,  2/18/2021
White Papers
Register for InformationWeek Newsletters
Current Issue
2021 Top Enterprise IT Trends
We've identified the key trends that are poised to impact the IT landscape in 2021. Find out why they're important and how they will affect you.
Flash Poll