The pre-dominantly US sponsored IT boom of the 90’s and the subsequent slump, especially in the light of the events of 9/11 have only impressed on Indian IT companies the need to look at geographies other than the US for business. While Europe has emerged as the forerunner in this regard, Canada may just emerge as the dark horse in the race, says Srikanth RP

As per Nasscom estimates, Canada currently accounts for a minuscule 1.5 percent of India’s total software exports. However, those figures may be in for a rapid overhaul, with Indian companies realising the immense potential it has to offer and making a beeline for the same. Some even see it as a back door entry into the land of Uncle Sam. Says Peter Sutherland, Canadian high commissioner to India, “You can say we are the cost-effective gateway to America. In addition to tapping the host of opportunities in Canada itself, Indian companies setting up base in the country can also address the entire North American market.”

37% of Canadian households will have high speed access by 2008

Source: Global broadband multimedia review 2000-2008 by CA Ingley & Co

But Canada’s advantages are not restricted to acting as a proxy to the US. The ICT sector, constituting a 10 percent share in Canada’s exports has always played a key role in the Canadian economy. In 2000, it contributed $47.8 billion to Canada’s economy, representing 5.1 percent of the total GDP. Annual growth has been 19.5 percent since 1997, much above the 4.4 percent growth of the economy. Further, since labour costs are lower compared to the US, more than three-quarters of ICT products manufactured in Canada are exported. In 2000 alone, exports of ICT goods touched $39.4 billion, up 43.7 percent over the previous year. Exports of telecommunication equipment represented the largest proportion (32.1 percent) of all exports of ICT goods in 2000. Again, the telecom sector is another area where Indian companies stand to benefit through alliances with telecom majors in Canada such as Nortel, Teleglobe, Eicon, Alcatel and Teklogix.

In 1999-2000, Indian IT software exports to Canada were estimated to be $110 million. With an eye on the immense potential for growth, Nasscom is working closely with various Canadian agencies to increase IT trade between the two countries and has set itself a target of reaching $1 billion in IT and telecom trade between the two countries by 2003.

However, the real advantage for Indian IT companies in Canada could lie in its cost effectiveness and the country, faced with competition in attracting Indian companies from different European countries, is aggressively pushing its cause. Its case has been furthered by a recent KPMG report, according to which Canada is the most cost-effective nation for doing business. Says Zulfi Sadeque, Canadian High Commission counsellor (commercial), “For Indian companies seeking to address the North American market, Canada offers better productivity and also the low cost advantage, compared to other countries in Europe and America. Also, labour is cheaper in Canada than any G7 country.” Another important factor, according to Sadeque, is that companies, depending on the province they are in, can get back 70 cents for every dollar they spend on R&D. Other independent studies have also found Canada to be the lowest cost country in software, R&D and corporate services in addition to electronic assembly. According to a study conducted by Industry Canada, R&D expenditure in the ICT sector in 2001 was expected to touch $5.3 billion, representing 45.8 percent of the total Canadian private sector R&D. This said, for Indian IT companies seeking to move up the value chain and focusing on R&D services, Canada could be the best bet.

On an average, Canada’s costs are 14.5 percent lower than the US, with a massive 33.1 percent advantage over the latter in the area of electronic systems development and testing. By industry, Canada ranks first in electronics assembly, biomedical R&D, content development and electronics systems testing. Hence, in comparison to regional counterparts, costs in Canadian cities are generally 10-20 percent lower.

Further, Canada and the US are each other’s largest trading partners. On an average, almost $1 billion worth of goods cross the border between the two countries each day. Further, due to Canada being a member of the North American Free Trade agreement, it gives Indian companies situated in Canada access to a large market, which is home to more than 365 million consumers with a GDP of approximately $9 trillion. Adds Sutherland, “In addition to lower labour costs, Canada also offers companies lower payroll taxes. Another added advantage is that Canada’s universal health coverage eliminates the need for basic private coverage.”

In addition, Canada is attracting huge foreign direct investments in the area of biotechnology, advanced telecommunications and multimedia.

Another attractive advantage for Indian software companies is that Canada is ranked number one at producing workers for the knowledge industry. India, which is betting big on the animation boom, could find an attractive base in Canada. Since Canada is said to be a world leader in multimedia and known to have attracted the attention of major studios such as Walt Disney Animation, Fox Animation Studios, Dream-Works SKG and Warner Bros Indian companies with a base in Canada could be a part of this revolution. For the record, Canada’s multimedia industry has revenues of $3.5 billion per year, growing at a rate of 20 percent. Canada also benefits from direct access to the largest multimedia market in the world the US, with an estimated value of $22 billion in 2000. Currently, Canadian multimedia software products dominate the Hollywood special effects industry with an estimated 80 percent share of the animation software market.

Early movers like TCS, Infosys and HCL Infosystems have already set up operations in Canada while others like Wipro and HCL Technologies are scouting to launch operations. What started as a trickle could soon become a flood with software exports to Canada moving from the current low 1.5 percent to more respectable double digit figures. India Inc already has a foot in the door, how much time will it take to get in remains to be seen.