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Technology Report finds $15.1-billion in efficiency gains from IT offshoring

Employees work on the floor of the outsourcing company WNS in Mumbai.

VIVEK PRAKASH/REUTERS

Information technology offshoring contributed $15.1-billion in net efficiency gains to Canadian businesses between 2001 and 2013, mostly in the form of cost savings, according to a new report.

But the impact of offshoring on IT employment in Canada is minimal, the report by market research firm IDC says.

It found that for 2001-13, offshoring resulted in an estimated net loss of 12,770 jobs, representing an economic value of $4.1-billion to Canada. By 2018, offshoring is expected to have a negative impact on IT employment of $8.8-billion, with a cumulative job loss since 2001 of about 17,000 jobs. However, the report says that in the 2001-13 period, there were $15.6-billion in productivity gains from offshoring that resulted in, after $500-million in overhead costs, a net benefit of $15.1-billion.

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"Yet the IT industry employs approximately 600,000 people, meaning that to date, it lost 0.2 per cent of the IT work force because of offshoring," the research by IDC's Mark Schrutt – published Tuesday – indicates.

The survey covered Canadian corporations that use offshoring services such as programmers, app developers, technical support and business process outsourcing, Mr. Schrutt said.

"Without offshoring, a lot of the companies would not be able to continue doing what they need to do to compete," said Mr. Schrutt, who is based in Toronto.

"Yes, there has been an impact on employment but the benefits far outweigh whatever costs there have been."

Last year, Royal Bank of Canada released a new code of conduct that favours hiring Canadian workers and limits what jobs it outsources to other countries. The move came after a highly publicized controversy over the bank's outsourcing and temporary foreign worker practices.

Outsourcing expert Anil Verma of the University of Toronto's Rotman School of Management said outsourcing has become well established as a corporate strategy in Canada.

The practice itself can help make companies more productive and cost-competitive, but only if there is effective co-ordination between the offshore operations and home base, with so-called "near-shoring" offering the benefit of less far-flung and more easily managed operations, he said.

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One potential drawback of offshoring is that it may inhibit innovation, but the study was unable to form any definitive answers as to the impact on innovation in Canada.

Among other findings is that 40 per cent of Canadian businesses that outsource use IT offshoring to some extent, a 12-per-cent increase from 2009.

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