Canada has not yet been negatively affected by the trend to outsource services because it is an “inshorer” of business services. That means foreign companies, generally U.S.-based, outsource more to us than Canadian companies outsource to others.

But Canadians can’t afford to be complacent, says Carl Gomez, an economist at TD Bank Financial Group. Most of the outsourcing that Canada supplies is “low value-added” services. This means Canada needs to invest in knowledge infrastructure, innovation and skills to move up the value chain.

At the same time, Canadians shouldn’t view their companies’ outsourcing as a threat. If companies lower their costs as a result of outsourcing, it can give this country’s companies an opportunity to invest the savings in productivity enhancing machinery, equipment and processes.

Outsourcing has taken off because of the significantly lower costs for long-distance telephone and satellite transmissions.

Although the trend’s main driver is cost savings, there are other benefits. These include increased capacity; higher service levels; access to better technology and systems; and consolidation of business processes across multiple divisions and locations.

The main processes outsourced in 2004 were IT development and support, transaction management, human resources and payroll, customer service and travel-expense reimbursement.

The outsourcing that Canada tends to get is call-centre business. According to a United Nations Conference on Trade and Development survey, Canada got 56 new call centres in 2002-03 — about 11% of the global total. In contrast, Canada got only about 2% of the IT service centres, many of which went to India and China instead.

However, Canada’s position in the call-centre sector isn’t that secure because “the growing Spanish-speaking population in the U.S., along with a broadening of the free trade zone across the Americas, threatens to divert more new call-centre business to South America,” says Gomez.

On the flip side, the Canadian sectors most likely to benefit from outsourcing are finance and insurance. An Organization for Economic Co-operation and Development study using 2003 data suggests that 89.7% of jobs in credit intermediation and related services, as well as 83.3% in finance and insurance, could be affected. IE