Indian IT outsourcers face backlash in Canada4 min read . Updated: 04 Jul 2013, 12:01 AM IST
Four of Canada’s largest banks have stopped handing out fresh outsourcing projects temporarily
Bangalore: Indian outsourcing firms such as iGate Corp., Tata Consultancy Services Ltd (TCS) and Infosys Ltd that count Canada’s biggest banks and financial services firms among top customers are facing a backlash in that country amid high unemployment.
Royal Bank of Canada (RBC), Bank of Nova Scotia, Bank of Montreal and Canadian Imperial Bank of Commerce—
four of Canada’s largest banks—for instance, have stopped handing out fresh outsourcing projects temporarily after the recent controversy where RBC used temporary foreign workers from Fremont, California-based iGate to replace permanent staff of the bank, according to at least two people familiar with the development.
The backlash against outsourcing jobs comes at a time when the unemployment rate in Canada stands at 7.2% and remains above the levels that were seen before the 2008 recession. The rate is slightly lower than the US unemployment rate of 7.6%.
“A large chunk of the outsourcing happens from the five-six large banks (in Canada)," said Rajat Juneja, practice director at outsourcing advisory firm Everest Group. “And there is a strong sentiment against offshoring (in Canada)—the banks are not currently commissioning any new business as of now."
While companies will continue to get revenue from existing outsourcing projects, new Canadian business will be tough to come by in the near term.
In April, the Canadian government began an investigation into a report that said RBC, the country’s largest bank, was using temporary foreign workers from iGate to replace permanent existing staff. The news led to a widespread outcry against the offshoring practices of the country’s top banks and financial services firms.
RBC also reportedly faced a backlash and protests from its own customers who threatened to close their existing accounts at the bank if they continued to outsource more work to India.
“These banks got some really bad press on jobs getting offshored, and that led to a temporarily halt in outsourcing," said Ben Trowbridge, chief executive of Dallas, Texas-based outsourcing advisory firm Alsbridge Inc.
An RBC spokeswoman said the bank will continue to outsource business when necessary but not at the cost of Canadian jobs.
“We have not stopped all outsourcing. We choose different sourcing strategies, including outsourcing, where it makes good business sense and helps us to grow in other areas of our operations," she said in an email response.
“We will only offshore to external suppliers when their investment in scale, technology or operational knowledge cannot be duplicated inside our own business or in Canada and we will not offshore work for salary savings only," she said.
The Canadian banking and financial services (BFS) outsourcing market is estimated to be worth more than $5 billion, according to experts tracking the sector, and will impact companies such as iGate, which gets 30-40% of its business from BFS clients in the region.
Other multinational IT service vendors such as Hewlett-Packard Co. (HP), International Business Machines Corp. (IBM), Capgemini and Accenture Plc also have outsourcing contracts with Canada’s top BFS firms. Top service vendors in Canada include the likes of Montreal, Canada-based information technology (IT) services provider CGI Group Inc., which has signed outsourcing contracts worth about $12 billion with various corporations in the country, and IBM, which has contracts worth $7 billion in the region, according to Everest Group data.
IGate declined repeated requests for an interview with its North America sales head over the past two weeks and also did not offer any comment to a detailed email questionnaire. HP, IBM, Capgemini and Accenture also declined to comment on the matter. Canada’s top five banks did not respond to emailed questionnaires.
To be sure, the halt in outsourcing is expected to be temporary, with experts and IT service providers expecting outsourcing projects to resume after six-eight months. Larger companies such as IBM and TCS, which have existing contracts with Bank of Montreal and Bank of Nova Scotia, are unlikely to be affected in a big way.
But smaller companies such as iGate that rely heavily on Canadian banking clients could see a significant slowdown in business over the next few quarters.
“Some of the larger players will survive this sort of a lull, but some of these smaller players who have carved a niche for themselves in the Canadian market and are largely dependent on it will suffer," said Juneja of Everest, adding that iGate could see a slowdown in growth over the next few quarters.
Recent US immigration legislation has also played a role in the outcry against offshoring jobs to Indian firms, experts said.
“After the RBC controversy, companies are waiting for things to die down. Banks are slowing down projects—they are keeping a low profile, while the tension over offshoring jobs blows over. What’s further aggravating this is the visa reform in the US," said an executive from an outsourcing advisory firm who requested anonymity.
According to experts tracking the sector, Canada is also likely to follow the US and introduce visa reform that will increase the cost of doing business for Indian companies operating in the country.