Canada’s Comeback: Why the Great White North Is a Great Nearshore Option

Recent trends have made Canada a nearshore contender again. But it's still early. There are no guarantees it will re-emerge as a low-cost haven.

canada nearshore

Economic problems and currency fluctuations over the past several months have made Canada a contender for U.S. nearshore contact center delivery.

However, outsourcers taking a second look at Canada should consider that these are still early days, and there are no guarantees that it will return to being the low-cost haven it was in the late 1990s and early 2000s.

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Falling Canadian Dollar Favors U.S. Contact Center Clients

For the past several years, despite a skilled labor force and strong American cultural affinity, Canada has shed much of its U.S.-designated outsourced contact center capacity. In fact, Ovum’s most recent forecast indicates that the percentage of Canada’s third-party workstations servicing consumers south of the border is approximately 13%; this is down from nearly 50% a decade ago, and is due in large part to the appreciation of the Canadian dollar during that period, which has achieved parity on more than one occasion with its U.S. counterpart and massively eroded any type of cost arbitrage.

However, tables have turned over the past year, with the Canadian dollar hitting its lowest point in the past 10 years (it currently hovers between 0.76–0.77 to the U.S. dollar), leading many outsourcers to wonder whether it is worth re-examining Canada for U.S.-focused capacity, based on currency costs.

Two key variables that vendors need to watch for include any further interest rate cuts by the Bank of Canada (which will further weaken the Canadian dollar) and any rate increases by the U.S. Federal Reserve (thereby appreciating the U.S. dollar), either of which would make Canada more attractive from a currency perspective.

Canadian Recession Will Mean More Labor Pool Flexibility

Canada’s apparent economic woes also point to opportunities for contact center outsourcers looking for U.S. nearshore delivery options. The Canadian economy is largely acknowledged to be in a slowdown, with many analysts predicting a return to recession.

Any slowing or contraction will have a loosening effect on Canada’s workforce, which has been much less fluid in recent years due to large migrations of labor to resource-rich provinces from ones that are less well-off, as well as because of ongoing levels of growth. Job cuts in western Canada will influence a return of families to rural Ontario, Quebec, and the Maritimes, providing more contact center recruitment opportunities in those regions, which have traditionally been the country’s front-office BPO backbone.

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Caution Needed When Reassessing Canada for CRM Delivery

Despite conditions that make Canada look more favorable for U.S. nearshore delivery than in recent memory, there are also reasons for outsourcers to proceed with caution.

For one, it is uncertain whether the very generous customized incentive packages that lured many firms to Canada during the late 1990s and 2000s will be available in many jurisdictions that are focusing on fiscal austerity. Equally, should demand for natural resources rebound in key offshore demand markets, the Canadian dollar is certain to appreciate and labor will tighten once again.

However, these remain only possibilities at this point, but what is certain is that forward-looking outsourcers interested in diversifying their delivery footprint for the United States should give Canada a second look.

Peter Ryan is a leading analyst with Ovum and contributes regularly to Nearshore Americas. This article is reprinted upon permission of the author.

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