‘Loonie’, ‘Greenback’ parity hits nearshore outsourcing in Canada

With the Canadian dollar attaining uniformity with the currency in the neighboring United States twice within two years, outsourcing firms who had made substantial investments to establish nearshore facilities in Canada to serve their clients from a comparatively gainful business environ are now finding it difficult to carry on their operations profitably. The situation has worsened for them as the Canadian economy is in the process of a robust resurgence, while the labor pools appears to be tautening further.

Apart from the parity between the Canadian and US dollars, another aspect that has been worrying the Canadian nearshore outsourcing firms, who had made heavy investments in Canada with a view to pull off cost savings taking advantage of a price differential between two or more markets, is that now they also require to mull over the effect of the thawing of the Canadian economy in order to comprehend what might ensue to their operations, particularly in the shape of labor costs. With more industries increasing business, it is natural that the people who were retrenched earlier would now be the major contenders for hiring again and possibly at much higher pay scales. This factor is likely to hit the financial services that offered BPO functioning having a reasonable team of expert employees who are comfortable with the financial service sector in the United States. In the emerging scenario, the BPO firms will be required to spend more to keep hold of these workers and this will eventually result in erosion in their profits.

According to a recent report, the Canada-based outsourcing firms also face another problem as the natural resource sector continues to increase its operations in view of rising demands. While the prices of oil and minerals go up afresh, the outsourcing centers in Canada, which are located in undeveloped regions, particularly those adjacent to the marine areas, and the less important urban areas that have high rates of unemployment, will now witness an attrition of their workers who would prefer transferring to the western regions like Saskatchewan and Alberta, where employment in the natural resource sector will be paying considerably higher than the BPO firms. In such a situation, the BPO firms will be required to pay much higher salaries and other benefits to stop the migration of their workforce. This would, in effect, denote higher expenses and, therefore, a diminished affordability for the services provided by the Canadian outsourcing firms.

The fact that industry experts and economists do not envisage Canada to be as profitable for the outsourcing firms in the country again in the near future. In fact, speculators are of the view that the parity between the Canadian dollar and the US greenback will henceforth do away with the lucrative price differential between the US and Canadian markets for a long time to come. In fact, such currency arbitrage during the latter part of the 1990s presented the outsourcing firms with ample prospects – at that time the Canadian dollar traded under 70 cents compared to the US dollar. Such a situation has forced numerous outsourcing firms to reduce their capacity in Canada with a view to cut costs. In fact, Convergys has been the first to initiate cost saving measures by announcing the closing down of its 500 workstations in Winnipeg in March last.