When considering a nearshore expansion, Nova Scotia is probably not the first place that comes to mind. There are other more established nearshore locations that tend to be first pick and offer better labor cost-savings. Yet IGATE chose the small Canadian province as the site for its expansion in North America and has promised to create 300 jobs over the next five years.
IGATE is a global integrated technology and operations company, headquartered in New Jersey, that provides consulting, technology and business process outsourcing, and product and engineering solutions. The company is in the process of finalizing its $4 billion acquisition by French consulting, technology and outsourcing provider CapGemini, and is currently in the silent period and not able to respond to press requests.
For IGATE the incentive to create jobs represents a significant opportunity. Investment promotion agency Nova Scotia Business Development Inc is offering $3,422,800 in payroll rebates if IGATE reaches the target — smaller rebates will be offered if it does not. Its service delivery center is at 165 FTEs to date.
Nova Scotia has a 20% cost advantage over East or West coast America — Lynda Arsenault, Nova Scotia Business Inc
In a press release issued by Nova Scotia Business Inc, Nina Babirad, Vice President of Operations at IGATE explained that the choice of Nova Scotia for this new center was based in large part on the province’s experienced workforce, and the many new graduates from the area’s universities and colleges. “We’re growing our Nova Scotia workforce with a mix of people, including those with good analytical skills, people with financial services backgrounds, and fresh talent,” she said.
The incentive package offered to IGATE is not without controversy, however, and some online parties have criticised the rebates. One of the reasons cited was the Royal Bank of Canada and IGATE’s involvement in the temporary foreign worker scandal in 2013.
The incentives have been useful in attracting business into the province, though, and have also been applauded by analysts. Nova Scotia is the second-smallest province in Canada by area, but the second most densely-populated. The province has a 2015 population estimate of 942,926 – the capital of Halifax accounts for 390,095 of that, according to Statistics Canada – but concerns about falling population in the area have increased over the past three years.
According to the Halifax Partnership’s “Economic Benefits of Immigration” report, “immigrants joining the Nova Scotian labor pool are helping to offset the province’s shrinking working-age population, which is projected to decrease by 100,000 over the next two decades.” The report also noted that immigrants account for 38 percent of STEM jobs in Canada. While the talent pool might be there now, there could be issues in the future.
Not All About Cost
In addition, Nova Scotia finds it difficult to compete with the labor arbitrage benefits of other nearshore destinations such as Latin America and the Caribbean. Payscale.com lists the average salary for a software developer in Nova Scotia as C$52,201, with Halifax-based developers earning slightly more on average. This is lower than the national average, which, according to Glassdoor, is C$67,000.
Comparative data on Latin American salaries in software development is difficult to find, but a 2015 informal survey by Bunny, Inc, for example, put the average salary for a software developer in Colombia at between USD$2,000 and $3,000 per month, with the top 10% earning more than USD$4,000 per month.
Canada is never going to be able to compete with cost relative to India or Mexico, but if Canada’s cost can go down 10, 15, 20% then that can be very attractive — Peter Ryan, Ovum
Lynda Arsenault, Director of Outsourcing and Information Technology at Nova Scotia Business Inc, said: “I see a trend with Indian outsourcing companies that are looking for a low-cost, nearshore North America sites. They think of Montreal, Vancouver, Toronto, but we are working to make Nova Scotia one of those top choices. Because Nova Scotia has a 20% cost advantage over East or West coast America.”
She added that Nova Scotia employees are known for their loyalty. “There is low turnover both in ICT and in the BPO sector, with less than 10% attrition rates.” Ovum analyst Peter Ryan, who lived and studied in Nova Scotia, agreed. “It is a cultural thing, because traditionally work has been hard to find in Nova Scotia so people tended to stick with jobs for a long time.”
The University Capital Delivers On Talent
Ryan said that those looking to invest in Nova Scotia should not only consider the provincial capital of Halifax, but other places such as Sydney in the Cape Breton region, which has a university that can provide top talent for the sector, as well. “IGATE’s investment is great news for the province and a shot in the arm for outsourcing in general in Canada. Nova Scotia is a great place for the type of services IGATE provides,” he said.
The province has worked to build its BPO and IT Services sectors over the past few years and a number of large companies, including IBM, Xerox, Admiral Insurance and the Royal Bank of Canada, have set up shop in the region.
The available talent and training facilities have played a significant role in those investments. IBM chose to locate to Nova Scotia because it housed one of the first data analytics institutes in Canada, the Big Data Analytics Institute at Dalhousie University, Arsenault explained.
According to a report in The Coast, there are more than 13,000 employees in 40 contact centers in Nova Scotia. There are 21,000 people in Nova Scotia that work in ICT. These figures are relatively low, but the region is working to increase numbers. The IGATE investment is part of building the sector and positioning Nova Scotia as a recognised, viable location for IT services and BPO.
Canadian Dollar Depreciation Gains
Arsenault said that Nova Scotia offers good quality of life, and companies operating in the space offer paid training, benefits and a good average wage. She said that minimum wage is CAN$10.60 an hour, and with the Canadian dollar at approximately 75 cents to the US dollar, the savings are attractive. “Canada is never going to be able to compete with cost relative to India, relative to Mexico, relative to South Africa, but if Canada’s cost can go down 10, 15, 20%, combined with the skills and the incentives, then that can be very attractive,” Ryan said.
The Canadian dollar’s depreciation is unlikely to last long term, however, so those companies which strike deals now and benefit from the cost savings could very quickly find those deals becoming more costly. While the potential cost saving is there, the longer term value proposition of Nova Scotia has to be about more than just cost.
We’re growing our Nova Scotia workforce with a mix of people, with financial services backgrounds and analytical skills — Nina Babirad, IGATE
Nova Scotia’s many universities and colleges — most of which have worked closely with industry to ensure that the needed skills are provided — do provide a steady stream of graduates, but one potential pitfall is that a number of those graduates tend to move out of the province, looking to areas such as Montreal, Toronto and Calgary for higher salaries and better job opportunities.
Investments like IGATE’s, however, could put a dent in that movement, as the sector grows and more jobs are created. “If there are those types of jobs available, it is likely that fewer graduates will opt to move — and we will see those who have moved out of the province returning. It’s a great place to live with good quality of life and relatively low cost of living,” Ryan said.