When collaborating with a dedicated development team, most companies make a surprising discovery – there are quite a number of specialists working on the project. And while the focal area of developers is nuff said, such job titles as PMs,…
Offshore Development Center (ODC) – What Is It and How to Set It Up?
Whether your company is located in New York, Paris, Berlin, or any other bright city lights, hiring a high-quality software developer can burn a hole in your pocket. As if a hefty salary isn’t enough, you’ll have to fork out for a wide array of other expenses, including taxes, pension, and equipment.
To ease the financial strain, forward-looking businesses are looking to set up ODC or offshore development centers to balance the cost of growing their software business. And convincing arguments like lower expenditures, simplified taxation, and access to a global talent pool tip the scales in favor of doing so.
With that being said, let’s have a closer look at this business practice, its benefits, and challenges.
What Is ODC (Offshore Development Center)?
The offshore software development center is a physical space or office dedicated to rendering software development services for the company. Companies can set up a dedicated offshore development center anywhere around the globe. However, businesses tend to choose a location where living costs are lower compared to their native country.
ODC vs Outsourcing. What’s the difference?
To fully answer the question “What is ODC?”, we should explain how establishing an ODC differs from outsourcing.
When a company faces a dire shortage of software engineers or they want to reduce the development costs, outsourcing can lend a helping hand. In 2019, the global outsourcing market amounted to more than $90 billion and is counting since then.
Overall, there are several choices to consider within the outsourcing model. When a company has defined the project requirements, scope, and specifications, a fixed-price software outsourcing model would be a good choice.
But if the requirements are vague or the project calls for ongoing offshore support on a long-term basis, then the offshore development center can develop your project from the ground up.
Also, an offshore software development center delivers services from another part of the world, while outsourcing renders the same service, but the geographical location is not the driving factor.
However, there are some other critical differences that can become decisive factors when choosing between these hiring approaches.
We define 6 key criteria which make ODC different from outsourcing. These are:
1. Project length
Unlike outsourcing which is universal for any project size, offshore development centers cater to complex ventures that require consistent support.
The ODC model compares favorably with outsourcing on this one. Since the former presupposes a dedicated team focused on one client, your project will get the undivided attention of hired specialists.
3. Team size
It is one more important piece of the “What is ODC?”-puzzle. While outsourcing allows you to recruit just one developer to fill your tech gaps, the ODC approach is supplied in a set with a whole team of specialists.
4. Hiring type
Your tech partner performs a rigorous screening before hiring coders for your ODC. All personnel are hand-picked to meet your unique requirements.
Within the traditional outsourcing model, the administrative department belongs to the vendor’s office. On the contrary, the ODC approach lets you set up a whole team including your own accountant, office manager, and HR.
6. Scaling perspectives
When establishing an ODC office, you can reckon for limitless scaling opportunities, whereas outsourcing lets you augment your team for a set period of time.
Recommended reading: A-Z Guide To Software Development Outsourcing
Key ODC Models
The ODC practice is further divided into two main models, including the BOT and the managed ODC models. Understanding the main differences between them will help you maximize the full potential of this approach for your specific business targets. Let’s dwell on each of the models.
Being a hybrid model, BOT takes the best from the “build” option (meaning, “insourcing” or captive center) and the “buy” option (meaning, outsourcing).” Within this model, a company hires a service provider to set up a center along with the funding, hiring the staff, and establishing a comprehensive infrastructure to run the business processes.
The service provider can get revenue from the center for a set period. After that, the service provider transfers the ODC to the customer as a captive center.
A BOT offshore development center then provides the customer with the following benefits:
- Greater cost savings
- More control over operations
- Less staff turnover
Within this model, the client gets their own ODC in a remote location. The service provider hires a team according to the client’s needs that will later research, analyze, design, and take on the operational tasks to deliver the product in collaboration with the client’s head office.
In this case, the vendor is also in charge of meeting administrative requirements, thus providing his own accountant, office manager, and HR payroll. Managed offshore development centers can operate as a branch office on the same level of responsibility.
Now that we’ve studied the basics of this business practice, let’s move on to the question that you’re certainly pondering in your head – Should I opt for it or do I need to consider another option?
When To Consider an ODC Model?
If you are hunting for a faster, cheaper, more effective alternative to put your business output in full gear, offshore development center outsourcing is probably your first election.
However, not all projects and business processes are meant for this scaling opportunity. This is why we’ve provided you with a cheat sheet that will tell you whether or not ODC is the right call for your needs.
- You are aiming for large-scale projects
In the case of offshore development centers, you shouldn’t waste talents on trifles. Unlike the traditional outsourcing option where a single function can be delegated to a remote developer, the ODC team is typically composed of diverse specialists.
Thus, you can only hire a development team including programmers, QA specialists, back-end and front-end developers, web and UI/UX designers, and a whole host of other talents.
Recommended reading: Agile Software Development Team: Things To Consider
- You want to enter a particular market
Setting up an ODC team also opens up new market opportunities in the chosen development destination. There is nothing more challenging and unpredictable than breaking into an unknown market, especially if you’re not familiar with the local business processes.
A support network in the form of high-quality professionals will surely give you a head start and alleviate a lot of headaches.
- You are in need of a large and diverse team
Instead of gathering a killer development team by crumbs, an ODC offshore development center comes complete with a talent-loaded team that is fine-tuned to your unique business needs.
This differentiates the hiring model in question from other recruitment options like freelancing and traditional outsourcing.
- You want to increase the development security
Since offshore development centers presuppose a geographically distributed process, the parties involved put in place comprehensive technical security measures during the development of the software.
Along with traditional safeguards such as a Non-disclosure agreement, an outsourcing vendor also ensures the physical security of data and the security of your final product.
- You want to scale on a budget
Unlike building up your in-house workforce, ODC models of remote staffing do not include any financial resources for workspace, equipment, and tech talent hiring.
All you have to do is to delegate the task to your service provider and onboard a dedicated team for your project.
- Your project requires particular tech expertise
As compared to the market needs, the tech talent landscape runs short for software development specialists even in gigantic companies like General Electric.
Hence, finding the rare tech stacks appears impossible in some countries. The offshore development center model is your big-ticket with diverse teams brimming with coveted skills.
Main Benefits Of ODC
- Access to domain expertise
Since you can’t expect your in-house IT team to wear multiple hats, you may need to tap into new areas of knowledge for the upcoming projects.
The managed service provider will help you augment your team with IT professionals well-versed in a particular field whether it’s fintech or healthcare-related projects.
Most likely, your company operates under the conditions of changing resource needs. There may come peak hours when your project needs expanded personnel to achieve a level of maturity.
So instead of grappling with this degree of management internally, it’s more time-effective to hand it over to your offshore development center and ramp up your development talent when needed.
- Reduced hiring costs
Recruiting a developer on-site can be an expensive project, especially if your company is based in well-paid locations.
Let alone hefty hiring costs and the eye-popping tech costs. On the other side, an offshore development center allows you to eliminate those costs since this expenditure item is on a service provider.
Recommended reading: Software Development Hourly Rate: World-Wide Comparison
- Reduced infrastructure costs
Investing in infrastructure and additional facilities like office rent, electricity, and an Internet connection can guzzle up a lion’s share of the company’s budget. Offshore development centers transform fixed costs into variables, thus allowing you to pare down infrastructure costs.
Also, project start-ups can take off more quickly if you do not need to factor in these expenses.
- Security enhancement
An ODC model compares favorably with other traditional outsourcing practices due to better security solutions.
Not only will your team be isolated from the outer world in a separate office, but your software and security will be kept up to date for your protection.
Common ODC Challenges
Despite an impressive number of benefits that accompany this hiring model, there do exist a few pitfalls. Thus, here are some of the top challenges that deter some companies from this outsourcing model:
- Cultural barriers impact the overall performance
This point is among the most oft-cited offshore development center challenges. Every company follows different cultural practices, including accountability, workload sharing, way of interaction, time management, and formalities.
This makes it challenging to onboard a whole team of experts with a different cultural mindset and established workflow.
Recommended reading: How To Manage A Remote Team?
- Nightmarish Logistics
Keeping both an outsourced office and in-house team on the same page may seem like an unnerving experience. Add to that deadlines, meetings, phone calls, and drastically different time zones, and you’re looking at dragged-out turnaround times.
However, finding a vendor in a convenient time zone and stable communication can make a huge difference.
- Unrealistic Expectations
A company may set the bar too high for a offshore software development services or expect an ODC to take care of all business processes.
To address this challenge, parties should discuss all roles and end goals beforehand to avoid further misunderstanding.
- Problems with Communication
An ODC fosters communication between the team members as they work on the same site. However, this center is, by definition, far away from the your company. The absence of effective communication can be detrimental to cooperation.
You will need a project manager who can cope with remote teams. It is crucial to agree on the form and schedule of communication from the start (daily status updates, weekly reports, etc.).
- Legal Peculiarities
Countries often differ not only in cultures but also in legal aspects. The unfavorable business policies can make your operations difficult or even impossible. You may have to tailor some of your processes to fit the local laws.
That’s why researching the legal landscape is an indispensable part of planning to establish an ODC. You may need to contact local consultants for assistance.
How To Set Up an Offshore Development Center?
Now that we’ve studied the science behind this hiring model, let’s move on to the actual work required to launch an ODC project. To help you create a win-win offshore strategy, we’ll guide you through this challenging process step by step.
- Choose location
Unfold your offshore experience by pointing to the right geographical location. The absolute winners in the outsourcing race are Eastern Europe and Asia that draw in global enterprises for economic reasons.
Besides the winning price-value ratio, companies should base their choice on the required technical skills and cultural specifics.
- Choose a vendor
Choosing a vendor is a delicate process that requires some deep research.
Along with standard screening procedures like studying a vendor’s portfolio and previous projects, there is a whole host of other indicators that demonstrate the reliability of the chosen partner. We’ll dwell on this point further in the article.
- Select ODC Model
As with most models, there isn’t just one Offshore Development Center model that works wonders for all companies.
Prior to making this choice, make sure you’re well aware of your current state of affairs and have a clear business objective. Based on these insights, choose between BOT and managed ODC models.
- Start recruiting (job descriptions)
When you’ve finally taken up all organizational matters, break the ice of the recruitment process.
At this stage, you should provide detailed professional requirements to your vendor so that he can analyze the current employment market and select the first suitable candidates.
- Interview candidates
Once the vendor presents the best matches for your review, there begins the next phase of the recruiting process.
To pick the cream of the crop, you should interview final candidates by setting Skype calls or arranging personal meetings. You can also delegate this procedure to your vendor.
- Rent office & equip it (if needed)
While recruiters are handpicking tech talents for your offshore development center, start the searches for a physical office where the future team will work.
Consider contacting real estate managers to choose a perfect location with parking lots, a security system, and other amenities. Or delegate it to your vendor if you’re considering a separate office.
- Hire a team
Finish the hiring process by sending job offers. As soon as the first developers get down to work, the offshore development center is finally up and running.
- Onboard new staff
Don’t forget to onboard new hires which is sometimes followed by on-site meetings in the main office.
- Start your project
Once you assign roles and responsibilities, your newly-minted workforce will buckle down to their work.
How To Choose ODC Company? Things To Consider
We’ve dealt with the “What is offshore development center?”-question and described how to set up such a center. Now it is time to explain how to choose a reliable ODC vendor.
Like any other selection process, there are various factors that determine the choice of the right ODC company. To save you time and effort, we’ve compiled the key factors to keep in view.
The impressive list of projects and services rendered is the first thing to take note of when choosing your ODC partner.
Having an expert vendor on your side gives you an added bonus as you do not have to worry about the complex details related to the services.
Taking into account the reputation of the vendor will provide even more insights into his services than a standout portfolio.
When studying the past projects, you will get a better idea of whether or not their services are up to your standards, and that it is maintained unceasingly.
A solid grasp of the English language ensures that your outsourced personnel can understand business presentations and communicated descriptions of problems and solutions.
It also indicates that developers can take an active role in everyday business discussions and the execution of complex tasks.
Time to reply
There is nothing more important for a successful tech project than thorough and frequent communication. Although it’s impossible to find out the degree of collaboration before the working process begins, you can get an idea of the vendor’s communication culture at the early stages.
If the chosen company takes the time to address your inquiries quickly and substantially, that’s always a good sign.
Finally, a reliable ODC vendor should be aware of and comply with your patents and intellectual property rights.
Before deciding on the partner, make sure the company provides the confidentiality agreements and is ready to conform to your standards and regulations.
Now, it’s high time to go over to the essential locations of your dedicated ODC offshore development center.
Top Destinations to Set Up an Offshore Development Center
Now we can safely leave the “What is ODC in IT companies?”-question behind and focus on the top offshore destinations.
The leading locations are rapidly evolving in terms of technical skills, competence, and tech expertise as well as boast a reasonable quality-to-cost ratio and vast tech talent pool.
Thanks to rampant globalization, you are not limited to a small number of ODC locations. The success or failure of this business model will hinge on the country as well, and in today’s “flat world” scenario, the options are frighteningly broad.
Nowadays the focus of outsourcing is placed on Eastern Europe and Ukraine in particular, due to the proximity of time zones, good cultural fit, and mature tech infrastructure.
At the same time, Asian countries, such as India, have made an entrance with new talents and attractive pricing.
Let’s have a look at some of the other most popular destinations and compare Ukraine and India as the best ODC offshore locations and decide which country comes out as an outsourcing winner.
Ukraine has already put a stamp on Silicon Valley with outstanding startups and the IT market reaching $5,4 bln in 2020. Over 192,000 Ukrainian tech specialists have proved their expertise in various niches ranging from fintech to healthcare, which allows Ukraine to beat the competition on the global market.
Ukraine has also become a strategic outsourcing and R&D destination with A-list companies establishing their development centers here.
For example, more than 100 R&D centers of technology and business giants such as Google, Samsung, Magento, Huawei, Sitecore, and others are located in Ukraine. So it comes as no surprise that companies of all sizes are looking to tap into the breeding tech ground in this destination.
As for India, the tech industry has seen a swell in demand over the last few years thanks to a fast-developing IT ecosystem. The IT sector backs up the local economy and accounts for around $70 bln in exports. India also has a whopping number of developers, that is more than 2.8 million employees are working as tech specialists.
However, it should be noted that this country has a much younger developer population as compared to Ukraine. It means that this location may lack the expertise and tech maturity to cater to some requirements.
Currently, over 1000 centers in India are dedicated to offshore development centers. With hundreds of tech companies, India has drawn in some of the largest multinational corporations, including Google, IBM, Microsoft, and Adobe.
If we look beyond numbers, both Ukraine and India present viable ODC opportunities thanks to the reasonable pricing and a vast talent pool. However, Ukraine keeps a slight lead in this race thanks to a convenient time zone and a great number of tech verticals.
While researching “What is ODC in IT companies”-topic you may come across some other locations. In particular, China holds a big chunk of the global technology sourcing market. This country has a strong export platform on which to build an outsourcing industry.
China has clocked large gains in offshore outsourcing with a projected number of US$19,527.3m in 2021.
As for the number of ODC service providers, it has multiplied to more than 3000 enterprises. So it’s no wonder that a growing number of global companies are setting up operations in China to target local markets, including Japan.
Along with Ukraine, Romania closes the top-three Eastern European countries with an impressive talent base.
The country is home to almost 139.000 software developers and remains extremely competitive in terms of hourly salaries. Over the last 20 years, the local software development industry has leaped, with an annual growth rate of 40–60 percent a year.
This prompted such leading companies as Microsoft, Nokia, and Intel to intensify their software development activities and set up offshore development centers in Romania.
ODC with Devox Software
We realize that choosing the right ODC partner can pose significant challenges for your company. Devox Software is an established ODC partner that helps you to hire skilled professionals and get the office in a convenient location. Our major differentiators include:
- A huge candidate base of high-quality developers
Your team is your superpower. Thanks to our rigorous screening process and a vast talent pool, we know everything about the perfect candidates for your offshore development center.
- Hassle-free hiring
One of the top reasons businesses tend to set up ODCs with us is because it allows them to avoid recruitment headaches and land perfect employees faster than in-house. Devox Software can take over the whole hiring process starting from pre-screening to final interview, so you can focus on mission critical tasks.
- Case-by-case approach
Software development projects are like fingerprints, since none of them have ever been found to have identical business needs. Our team performs a profound study of a company’s requirements and makes a unique commercial offer tailored to your standards.
- No administrative burdens
We increase the efficiency of your business processes by taking out time-consuming procedures like document preparation, accounting, and office search. In the meantime, you can focus on your professional duties
If this option doesn’t cover your needs, you can choose the engagement model that works best for your project, including outsourcing, outstaffing, dedicated team or staff augmentation.
What if this hiring model doesn’t work for you?
We, at Devox Software provide a wide range of services to address your unique business needs. If setting up an offshore development center misses your point, we can offer other modalities, including:
- Dedicated team – a business model that refers to a form of cooperation between the client and service provider, when the latter provides a remote software development team on a long-term basis. These specialists are hand-picked according to the client’s needs.
- IT staffing – an outsourcing strategy when the service contributor provides skilled staff to the client for both short and long-term projects.
- Staff augmentation – an outsourcing model that alleviates administrative burdens for the client and allows to ramp up and down the software development team on demand.
- Outsourcing – the practice of farming out some or all of the IT functions to an external service provider. It allows companies to delegate work outside of their internal structure to save money, make things more efficient, and scale on demand.
The Bottom Line
Setting up an offshore development center has proven to be one of the most viable investments that drives digital transformation for your business. The ODC is an efficient business model that helps to expand the market reach of a company in another country, provide better access to tech talents, and decrease upfront and infrastructure costs.
As the offshore software development trend continues to rise, lots of outsourcing destinations follow this trend, offering ODC opportunities.
However, the Ukrainian large and fast-paced tech industry is well known for being the top ODC location in Europe, surpassing other destinations in talents and expertise. And to make all these benefits work well, you’ll need an ultimate ODC provider like Devox Software.