Tuesday, September 18, 2007

Whither Canadian Outsourcing?

On a completely different track than I normally take here…

As many folks in the business know a lot of production has been outsourced to Canada in the last 20 years or so. This is true not just for animation, but for live action films and TV as well. Vancouver and Toronto have healthy animation industries, much of it built to service outsourced TV and DVD work coming from the US. Andecently we have even seen the production of two feature films being done in Vancouver. The normal attraction for this has been (as always) cost savings. The Canadian dollar has historically been rather heavily discounted against the US Dollar. Additionally the Canadian government isn’t shy about offering tax incentives and subsidies to studios to attract the business from the south. When the US Dollar has been strong this has been a win-win for US and Canadian studios (though not necessarily for US based animation artists. Folks who used to work at Big Idea know what I’m talking about).

But what happens when the US Dollar isn’t strong? This week the Canadian dollar has been living at about 95-97 cents against the US dollar. For most of the time since the mid 90’s the Canadian dollar has averaged between 65 and 75 cents against the US dollar. (now you see why production went north- a 25-30% savings on exchange rates, plus the tax incentives). This year alone the Canadian dollar has gained over 10% against the US Dollar. In other words- the Canadian dollar has almost the same value as the US Dollar. Suddenly that outsourcing isn’t quite as profitable as it used to be. There are still the helpful Canadian tax incentives, but still. That 25% currency savings has pretty much evaporated.
So what will this mean for the outsource dependent animation industry in Canada? Will they lose more and more production to India? Hard to say for sure, but if this weak US dollar position persists (and many economist believe it will for some time) animation folks in Canada might be seeing some work dry up.

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