Near Shore: Canada Finds Gold Between India And U.S.Near Shore: Canada Finds Gold Between India And U.S.

For business-technology managers considering outsourcing to save money on IT costs, the world is looking like a country-by-country arbitrage opportunity.

Many companies, particularly those uncomfortable with the distance and potential political uncertainties of Asian countries, find the near-shore option of Canada offers the right mix of cost and convenience.

Phil Mandeville, director of application delivery and information systems at Tufts Health Plan, looks at Canada as a happy medium between the higher costs of labor in the U.S. and the relative uncertainty and logistical problems posed by India. "It's really a perfect environment for us," Mandeville says.

Tufts has farmed out the development of administrative applications for its managed-care business to Keane Inc., a U.S. outsourcing firm that operates a service center in Halifax, Nova Scotia. The application suite developed and managed by Keane handles claims processing for Tuft's partners as well as member enrollment. Mandeville says the development and maintenance costs for the application are about halfway between what similar services would cost in the U.S. and India.

However, the travel and management costs are significantly less. Tufts is in Boston, about a one-hour flight from the capital of Nova Scotia. "We can visit and have face-to-face communication as often as we need to," Mandeville says. "Cost isn't really an issue."

Mandeville thinks his team needs that face-to-face communication. At a recent meeting between Tufts and Keane managers in Keane's downtown Halifax service center--overlooking Halifax harbor where, on that day, fishing boats were unloading 300-pound tuna on the docks--Mandeville and his team had a back-and-forth about what Keane's recent adoption of Capability Maturity Model Level 5 practices would mean for Tufts.

"We're going to be much more process driven. There will be a lot less ad hoc changes made to things," says Darren Derocher, Keane's CMM program manager.

"Does that mean we'll have less flexibility in terms of revisions?" asks Michael Younger, director of infrastructure services at Tufts.

"It means we'll ask you to go through a more formalized process that ultimately means less errors and better service," Derocher says.

It's a complicated issue that's at the heart of what's important and difficult about offshore outsourcing--delivering quality, maintaining flexibility, and communicating well. And it's the kind of exchange that, over the phone or through E-mail, could have taken several iterations to produce a comfort level for both parties. However, Tufts managers came out of the meeting feeling Keane's embrace of CMM Level 5 practices was a good development.

Canadian outsourcing operations know they're competing on a world-wide market for IT work, which helps explains why Keane is adopting CMM. For a time, Indian firms held a virtual monopoly on using the CMM Level 5 development process. But as its acceptance has grown, Canadian service firms are playing catch-up to attract more outsourcing business. The first shop in Canada to obtain the designation, the Software Engineering Institute's highest ranking for process control, was an in-house development center for Motorola Inc. in Montreal.

Alaisdar Graham, managing director at Keane Halifax, says there's an opportunity for Canadian firms to pick up business from managers who haven't been effective in outsourcing to more-distant locales. There's "blowback from India, where customers weren't happy with their ability to manage the process," he says.

Other services firms also are looking to tap demand among U.S. businesses for a near-shore partner. EDS maintains about 7,400 personnel in the country and books roughly $1.05 billion in U.S. dollars in annual revenue there. Even Indian service providers are establishing a footprint in the country as they look to give their customers a broader range of geographic options. Last year, Wipro Technologies, the global technology-services division of Wipro Ltd., opened a development center in Windsor, Ontario.

Tom Gary, managing director for BearingPoint's Europe and Asia Pacific global technology services, says more managers are "stratifying" different IT work based on such factors as cost and convenience. So a client might send part of its work to a low-cost site such as China, but want some of it in Canada, and some done on-site. Says Gary, "It's brought into our vocabulary 'price arbitrage.'"

Illustration by Jonathan Weiner

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