Competitive pressures are forcing Indian BPO companies to offer more than just offshore outsourcing capabilities to their customers. Companies with presence in one country also want multiple locations to leverage local cost and talent advantages, besides better meet customer needs.

One such destination, which is on the radar of many Indian BPO companies, is Canada. Its geographical proximity as well as cultural affinity to the large US outsourcing market are making this destination attractive for a near-shore delivery base. When different near-shore destinations are compared, Canada actually emerges at the top for its quality of manpower and language capabilities. However, it also rates highest for its cost of operation.

The maturity of the Canadian economy, and in turn its outsourcing industry is evident in its outsourcing revenues - the country earned about $5.5 billion in outsourcing revenues in FY06, compared to $200 million in competing Brazil, $300 million in Mexico and less than $5 million in Jamaica. Some of the competing countries in fact are much cheaper and have Hispanic language capabilities that Canada does not have. However, robust infrastructure, political stability and an excellent service quality reputation have contributed to Canada's attractiveness.

Among the perceptible disadvantages, however, is a reducing foreign exchange differential between the Canadian and US dollar, which is eroding whatever small cost benefit there is to offer over a base in the US. Moreover, Canada's own outlook on information technology and business process outsourcing industries is not so encouraging. The domestic outsourcing industry is growing at not more than ten percent per annum, and there is already talk about labour shortage in the larger cities of Toronto and Ontario.

However, Indian BPO companies going to Canada have a lot to gain from relatively lower costs, and proximity to existing and potential US clients. Secondly, large US customers prefer near-shore delivery centres, and these often serve as a stepping stone to offshoring to India.

For most Indian BPO companies looking to set up a centre abroad may consider acquisition or collaborations rather than setting up from scratch due to the cost considerations involved. Further, Canadian outsourcing companies are by and large available at lower valuations than targets in India, owing to a slower domestic rate of growth of the outsourcing industry.

Transworks, an Indian BPO services provider recently acquired a large Canadian BPO 'Minacs' for $125 million. Minacs had earned $265 million in revenues in FY06 and is a profit making company. In fact, Transworks already has a Canadian presence, which is further strengthened by the acquisition of Minacs. Others like Hinduja TMT, which acquired a US-based CRM provider Affina, will gain from the multi-locational delivery base of the acquired company. Affina operates out of seven centres in the US and Canada. Other companies like 24/7 Customer, Satyam and TCS already have an established base in Canada.

In future too, we expect the larger BPO companies to regard Canada as an important part of the global delivery model. But given the prohibitive cost of set-up, coupled with attractive valuations of Canadian companies, more may continue to go in for the acquisition route than set-up on their own.

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