By Mark Crawford

In order to find out why and how Canada has become the co-shore and near-shore location of choice, Area Development staff recently sat down with Mark Gibson, senior manager of the Business Risk Services, Business Advisory Practice Group for Ernst & Young in New York City. Gibson has recently placed several back-office operations, call centers, and transactional centers in Canada. He provides some insight into the advantages that Canada offers U.S. companies.

AD: What’s the difference between co-shoring and near-shoring?
Gibson: Co-shoring is largely a shared-services environment that is comprised of local, regional, and truly offshore components. For example, 60–80 percent of the work is purely transactional and is handled offshore, such as in India or Mexico. But the first point of contact is made in a “local” regional center, such as Canada. Perhaps only 10–20 percent of the entire co-shoring operation staff is in Canada. This is because they handle the first point of contact with a customer and need to speak English fluently and have strong skill sets. In a near-shore setting, the outsourcing company (or the company’s clients) wants the transactional centers to also be in North America as well — not offshore. Canada is the most popular choice for near-shore operations, followed by Costa Rica and the United States.

AD: Why is Canada the top choice?
Gibson: Stability and business continuity. Companies are always concerned about the political risk of offshore locations, such as India. And the top offshore locations in Europe (Czech Republic) and Asia (Singapore) are still higher-risk than Canada.
A second reason is that Canadians speak English, as well as other languages. Canadians are as well-educated as Americans, if not more so. Canadian workers earn lower salaries, have lower turnover rates, and are more reliable and productive than U.S. workers.
Therefore, outsourcing companies rely on their Canadian centers to do the “first touch” with clients; the scanning and entry of data can be done elsewhere, such as in Tulsa, Salt Lake City, San Antonio, or Mexico. For example, if during data entry in Juarez, Mexico, a problem is discovered with an account, that information can be “reflected” back to a center in say, New Brunswick, where a Canadian will handle it personally with a phone call.

AD: Where are the biggest clusters of near-shore and co-shore operations in Canada?
The Maritimes — particularly New Brunswick — Calgary, and Toronto have large concentrations of back office, accounting, and procurement operations. This is a growing trend in Canada.
Some companies are retrieving outsourced work from India back to North America, especially Canada or the upper Midwest and Mountain States, because of problems with cultural issues and language translation. For example, asking for something as simple as a purchase order number could easily be lost in translation with the night shift in India. Most U.S. companies want a culturally close, North American accent to represent them to their customers. The other big advantage for Canada is having the same time zones as the U.S.
New companies that are providing shared services have learned from mistakes of other companies in the same industry. Instead of going completely offshore, these new companies are building regional reflection centers in Canada. More and more businesses are deciding that they want their higher-function, more complex outsourced tasks to be handled in North America.
In fact, India-based outsourcing companies are also building reflection centers in North America to service their clients — partly because the companies know certain tasks are performed better here, and partly because their clients are also pushing for this improvement. They know that it just makes good business sense to have these functions performed in Canada or the U.S. instead of India. It may be seven to eight times more expensive to complete a function in Canada, but if it can be done eight times faster, then it becomes cost-effective.

AD: In some regions in Canada, such as the Maritimes, contact centers have been growing at 20 percent per year. Why is Canada so popular?
Gibson: That is correct. On average, for every 10 companies setting up contact centers in North America, three will go to Canada, and the others will be spread out in different cities across the United States. Canada is the preferred destination for contact centers because of the compatibility of language, time zones, and the lower overall cost of doing business. Canada has a high quality of life, lower cost of living, and high educational standards. Plus Canadians have a very strong work ethic.

AD: What are the top site-location factors for companies who want to set up co-shore/near-shore facilities?
Gibson: 1. Operational costs
2. Business continuity and security
3. Labor pool and skill sets — always one of our greatest challenges
4. Direct flights
5. Perceived quality of life
6. Incentives

AD: Security and business continuity is, of course, a top issue with companies that outsource services. Is Canada viewed as a secure place for near-shore and co-shore operations?
Gibson: Absolutely. Companies want to do business in low-risk countries that are politically and economically stable and have stable currencies. Boring is better in this regard. There is a strong concern about the general instability of India. Any major conflict in the region could double the cost of doing business there and significantly disrupt security.
Business continuity planning is usually driven by the distribution and capability of technology. Power grids and telecommunications between Canada and the U.S. are fairly interconnected, so failure in the U.S. of one or both of these systems would definitely be felt to some degree in Canada — that reality cannot be escaped. However, for political stability and the risk of terrorism, Canada is a good spot to have backup operations.
Some companies build a “shadow” facility, which is basically a building complete with the infrastructure and technology it needs, but not the staff. If it needs to become operational, the company simply moves staff into the building and starts doing business. The other alternative is having a duplicate operation in Canada, so if one center goes down in the U.S., its operations can be picked up by the Canadian location. A further option is to have a “follow the sun” routine, where some work is done in Europe, some in Asia, and then some in North America as the “sun moves” around the globe. It is typical to have enough emergency capacity so that if one of these centers goes down, the other two can handle 70–80 percent of the workload for a short period of time.

AD: How can Canada keep its competitive edge?
Canada is seen by many organizations as an ideal co-shoring location, especially when twinned with India and Eastern Europe in a global shared-services environment. As I mentioned before, even foreign outsourcing companies in places like India are placing co-shoring facilities in Canada to build up their systems and infrastructure.
As strong as Canada’s advantages are, companies are always seeking new ways to keep costs down. Increasing competition in Jamaica, Ghana, and East Africa for co-shoring has come onto the radar screen. If Canada continues to make sure there are enough well-educated workers with the right skill sets for these operations and stays cost-competitive, its pipeline should be full of near-shore and co-shore opportunities.

With over 22 years of experience in the shared services, business operations, real estate, and outsourcing businesses, Mark Gibson is one of the top business consultants in the country. Gibson specializes in business-process assessments and re-engineering, project management, cost reduction, outsourcing, procurement analysis, and shared services assessments. He has managed over $3 billion worth of projects and has sited the equivalent of over 20,000 people on three continents into a variety of solutions, including shared services, offices, data centers, call centers, and manufacturing.
Gibson holds some of the highest qualifications in project management and also teaches project management at New York University and International Development at Columbia in their master’s programs. He can be reached at mark.gibson@ey.com or 212-773-0207.