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Canada As a Nearshore Outsourcing Hub for US Tech Companies

Vik Bogdanov
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Going north of the border to outsource IT functions may not have been the obvious choice for US companies, but that’s changing rapidly. This phenomenon is supported by the political climate in the US and an exchange rate that favors American companies.

The Sourcing Decisions 2017 conference held recently in Toronto reflected this new enthusiasm for nearshore outsourcing. What was obvious at the conference is the fact that what’s driving the Canadian outsourcing sector today is significantly different from what it was ten years ago.

In fact, it’s not confined to domestic end-user support or just small nearshore tasks for US clients anymore. The primary reason for this change is the fact that much more sophisticated work can be derived from Canada cost-effectively.

Geographic proximity, similarities in law, and political stability also help make this process easier. Furthermore, having the same language and similar time zones also help make managing outsourced projects much easier.

But hiring large teams and small teams come with their own unique challenges. Let’s take a closer look at the hurdles that US companies need to overcome.

Companies with a Corporate Presence on the Ground are Best Suited for Large Teams

US companies looking to take advantage of the Canadian workforce need to find a way to employ them legally. Furthermore, there're also various regulations when it comes to outsourcing that have to be followed.

However, there are a few ways to get around this. For example, a US company can set up a Canadian corporation and directly hire workers there. This is the best option when it comes to doing business in Canada and hiring a large team.

Independent Contractors Can Attract Legal Issues

For smaller companies that are looking to hire just a few individuals or a small team, it really doesn’t make sense to set up an office in Canada. In fact, it can become a distraction because you have to manage two sets of books while following US tax laws and Canadian tax laws.

Let’s not forget that you have to follow two sets of labor laws as well. Although there are some similarities, all this combined can become expensive quite quickly.

Some companies have tried to get around this hurdle by hiring individuals as contractors or consultants. But this approach can attract some potential legal challenges. So the next option might be better to avoid any legal headaches down the line.

Engage a Professional Firm to Act As Your Employee Organization 

You can always hire a professional IT outsourcing firm in Canada to get the job done. It really doesn’t matter whether you want to hire an individual, build a small team, or a large one as they will be able to meet each specific need.

Partnering with an outsourcing company also comes with the added benefit of not having to deal with HR complexities. As they will be responsible for maintaining compliance, you won’t have to deal with complex laws and regulations.

By going down this route, US companies can treat their Canadian employees in the same way as their in-house employees without building a legal, corporate, and accounting structure in Canada.

Canada continues to be a leading sourcing nation for large companies in the US. Since last November, it might also become the country where US companies base their foreign-born workers. With software development growing in importance, it’s valued at an excess of $1 billion.

The future looks bright for Canada as a technology hub and as a nearshore partner for American tech companies. As more CEOs from tech companies start looking up north for stability, this trend can only become more popular in the months and years to come.