Canada Wants To Become The Next India For U.S. Software Companies

Could Canada become the next India for American-based software companies outsourcing work?

Not exactly. However, Canada is becoming an attractive option many American software developers are eyeing for their future outsourcing strategies, according to a new report released on Tuesday by SD Forum and Luxoft, a Russia-based outsourcing firm.

Of the 200-plus U.S.-based independent software developers that took part in the survey, 94% say they're outsourcing project work, either domestically, offshore, or near-shore, or in some combination of all three. India is the leading offshore destination of those companies outsourcing, followed by Singapore, Russia, and China.

However, Canadian cities, including Vancouver and Toronto, win out over India for future outsourcing strategies by American independent software vendors, particularly among those that use a mix of offshore, domestic, and near-shore work.

West Coast-based American companies were more likely to choose Canadian cities, namely Vancouver, over India for outsourcing work.

Although cost savings was the key consideration fueling offshoring to India and other countries, near-shoring to Canada, and to a lesser extent Mexico, was chosen for a number of reasons, including closer proximity and being in the same or similar time zones. Also driving near-shoring to Canada by U.S based software companies is similarity in language, culture, security, and perceived quality of work.

"This clearly shows what roles other factors play in addition to cost in outsourcing," said Michael Vax, CEO of Luxoft Canada.

But that doesn't mean that cost-related issues aren't also drivers for Canadian outsourcing, he said. "The exchange rate is good," plus it can be easier to find talent since Canada isn't faced with the sort of H-1B visa caps the U.S. faces in hiring foreign-born tech talent, he said.

In fact, American-based developers, most recently Microsoft, have been expanding their own development staffs in Canada, he said. In July, Microsoft announced plans for a Vancouver development center that would initially staff 200 but could grow to 800.

So, what work are U.S. ISVs more likely to outsource? Some 53% said they outsource software development; 46%, software maintenance; quality assurance, 43%; performance testing, 35%; and software architecture, 32%.