Offshore Development Center Everything You Need to Know
Offshore Development Centers (ODCs) are now a wise choice for businesses looking to better their software development while saving money. Given that expert workers are key in this industry, the hefty gap in pay for software engineers globally significantly influences this decision.
This article discusses the pros and cons of offshore development centers, as well as how to use them and where to do so.
What is an offshore software development center?
The digital technology revolution is progressing rapidly, presenting a remarkable challenge to non-tech organizations. They are currently grappling with a shortage of top-tier software talent. This scarcity not only undermines their competitiveness but also poses a threat to their growth rate. To confront these obstacles, many businesses have chosen to implement Offshore Development Centers. By leveraging ODCs, they can seize opportunities and alleviate the pressure to be the first in developing new technologies.
An Offshore Development Center (ODC) is a unique institution. It has excellent tech infrastructure and brilliant workers. It’s usually located overseas and centers on software production or IT work. It’s like when a company forms a “remote working team” in a different country. They do this to deal with complex IT or software tasks.
Setting up an Offshore Development Center gives you all-in-one solution. It handles everything: hiring, training, managing office tasks, looking after finances and HR. This helps your company in its software and IT jobs. Because of this, running an ODC cuts costs for making software. But, it still keeps high standards and ensures tech advancements.
Offshore Development Center and Outsourcing, are they similar?
Offshore Development Center and Outsourcing might seem the same but aren’t. Here’s how they differ:
Outsourcing means getting a third party – maybe another company to do certain jobs or tasks.
The original company or organization hires the third party to carry out the work and has less direct control.
The project owner retains significant decision-making and control over tasks and work plans.
Offshore Development Center (ODC):
An Offshore Development Center is simply a software development hub situated in another country, generally where high-quality labor resources are available at a comparatively lower cost.
ODCs are frequently set up to offer continuous software development services tailored to a particular parent company.
The parent company maintains a more intricate level of control over project management and the development process at the ODC.
Basically, an Offshore Development Center is like a specialized type of outsourcing. It’s where a dedicated team is established for long-term projects with the main company. While an ODC generally uses an outsourcing model, it’s operated under more direct supervision and management from the main company.
How does an Offshore Development Center operate?
Choosing to set up an offshore software development team can be a meaningful landmark in a company’s journey. This team, while physically distant, follows the same rules and guidelines set by the company’s main office. Just like their counterparts at headquarters, these IT professionals contribute valuable expertise and perform crucial tasks that help drive the company forward.
In an offshore software development team, it’s common to encounter a mix of professionals such as software engineers, quality assurance testers, front-end and back-end developers, UX/UI designers, and team leaders. The company’s main office usually outlines the team’s roles and structure.
The benefits of opening an offshore software development centers
More and more businesses are starting to see the value of investing in offshore development centers. They’re drawn by the numerous benefits these centers can offer. It’s a great opportunity to tap into some really promising advantages. Offshore development centers can be a game-changer for companies, helping them improve efficiency, scale up easily, and stay competitive.
Below are the reasons why many companies opt to hire developers from overseas to establish ODCs:
Cost Savings: An ODC cuts costs for staff, management, gear, and infrastructure. It also reduces additional costs for hiring, training, office work, accounting, and HR management.
International Business Expansion: ODC creates chances to access new markets, understand local laws and business regulations, and build relationships with local clients and partners.
Access to Expertise: Businesses can assemble a squad of professionals deeply versed in information technology and software development. This guarantees top-notch outcomes, providing the opportunity for the in-house team to focus on other key areas of the business.
Proximity to Target Market: Having the ODC situated close to where the company produces or the market it caters to can help in creating products or services that suit the local folks efficiently. This might help in building a solid reputation within the target market.
Challenges in Offshore Software Development Centers
Good things go along with the tough parts and risks. Knowing what might be tough can help things run smoother and more successful. Here’s what you should remember:
Managing from a Distance: Good communication and management are critical to the success of software projects. Language and time zone differences can make management difficult.
Unclear Communication: Communication problems can occur from cultural, language, and time zone disparities. These factors impact project timelines and product launches.
Adapting to Changes: Adapting to changes in project goals or requirements can be difficult in an offshore development environment.
Competition for Talent: To retain skilled individuals, companies must provide appealing perks and growth prospects, which could escalate the operational expenses of the offshore development center.
Cost Efficiency: While cost savings can be achieved compared to in-house development, cost management is crucial to maximize efficiency.
Establishing an Offshore Development Center: A Step-by-Step Guide
1. Define the project’s needs and objectives
Knowing what you want from an offshore development center is vital. Understand your goals by considering these aspects:
The work type: making new products, improving existing ones, or finding top-notch talent.
The best place for the offshore center.
Your foreign company’s size.
Required skills of your team.
Your present budget.
The need for management.
What form your management should take.
Once you really understand what you want, this can help company leaders. They’ll make smart choices about the right offshore center model. Plus, they can distribute resources well for the project.
2. Evaluating Feasibility
Understanding if your offshore development center plan is feasible or not is essential in predicting its success. This procedure helps you recognize the advantages and disadvantages, potential opportunities, hurdles, risks, how much budget you need, and the chances of your project being successful.
When assessing the feasibility of your ODC, you can focus on the following points:
Local talent resources
Legal risk factors
Other potential risks
A thorough check on feasibility will give you important insights and advice to help shape your strategy for developing an offshore center.
When deciding where to set up an offshore software development center, businesses should consider a variety of factors. These include the skill level of local talent, hourly rates, time zone differences, legal and security regulations, technology infrastructure, and political and social stability among other things.
4. Legal and Compliance Concerns
Legal and compliance are vital when setting up an offshore development center (ODC). Each country has its own laws governing labor, taxation, and data protection. It’s important to know and follow these laws to avoid legal issues and extra costs.
In determining the location of an offshore development center, various factors come into play. These cover rules on FDI, import and export, wages, attrition, and legal issues. Considering all legal aspects is crucial. This often requires the help of local lawyers or agencies with expertise in these fields. Making informed decisions about offshore development centers requires a comprehensive understanding of these intricacies.
5. Combining with an Existing ODC or Forming Your Own
Setting up an offshore development center (ODC) gives companies two choices: starting a new business or partnering with an established ODC provider. Both methods have their plus points and factors to think about.
Forming a New Company (Wholly Owned ODC)
Full Control: You have complete control over the ODC’s operations, staff, and projects.
Tailored to Your Needs: The ODC can be customized to align with your specific requirements and objectives.
Long-Term Investment: It can be a long-term strategic investment for your company’s growth.
Higher Initial Costs: Setting up a new company abroad involves higher initial expenses, including legal, administrative, and infrastructure costs.
Ongoing Management: You’ll be responsible for ongoing administrative and operational tasks.
Legal Compliance: You must navigate the legal and regulatory requirements of the foreign country.
Partnering with an Established ODC Provider (Outsourced ODC)
Faster Setup: Partnering with an established ODC provider can expedite the setup process.
Reduced Overhead: You can benefit from the provider’s existing infrastructure, facilities, and local expertise.
Flexibility: You can focus on your core business while the provider manages day-to-day ODC operations.
Limited Control: You may have less control over the ODC’s operations and staffing decisions.
May Not Be Customized: The ODC provider’s processes and services may not be fully tailored to your specific needs.
Ongoing Costs: There will be ongoing service fees to the provider.
Deciding to create a new business or join hands with an ODC provider hinges on your company’s aims, budget, and how much control you desire. Before landing on a choice, it’s crucial to scrutinize your company’s demands and thoroughly investigate.
6. Establishing Infrastructure
Launching an offshore development center requires building a secure and reliable infrastructure. Factors such as office space, information technology, hardware, software, internet connectivity, power, backup systems, and security measures need careful consideration.
The company’s leadership takes care of various tasks such as identifying, leasing, and furnishing an office space, navigating local tax regulations, and hiring recruiting and support staff. Additionally, they also bring in developers. Setting up an offshore development center can be costly and time-consuming, so many top companies opt to outsource software development instead.
7. Setting up a remote software team
The way a company builds an offshore development center (ODC) depends on whether they create it from scratch or partner with a vendor.
If you opt to build an ODC from scratch, you should:
To establish specific positions, begin by providing clear definitions for each role and crafting comprehensive job descriptions. These descriptions should outline the responsibilities and skills required for each position.
Recruitment planning involves creating a plan, conducting interviews, and evaluating candidates. Afterward, decisions are made regarding their selection.
On the other hand, when working with a vendor, the process is usually simpler:
Choose a vendor: Pick a trusted, seasoned partner matching your aims and demands.
Communicate specific requirements: Firm leaders relay exact tech-related project needs to the supplier.
Identify suitable candidates: The vendor will quickly identify suitable candidates to meet your needs.
In both scenarios, it’s essential to take a close look at the individual’s educational history, proficiency, and experience. You need to weigh their hard and soft skills, and judge how well they mesh with the company culture.
8. Onboarding and Training
To make your software project really fly, build a workspace where everyone can thrive. No matter if they’re plugging in from home or at headquarters, each team member should be looped in and working seamlessly together towards shared goals. And let’s not forget – everybody should have a clear sense of what’s expected of them in their roles.
To help team members bond, leaders should focus on providing training sessions, guidance, support, and regular feedback meetings. This aids new team members in fitting right into the company’s culture.
One way to better regulate work is via applications such as Trello and Asana. Use these apps to craft to-do lists, distribute duties, determine due dates, and follow advancement. This aids team members in acknowledging their obligations, due dates, and task priorities. Tasks become more systematized, easier, and the team works productively.
9. Establish clear and consistent communication channels
Working well with a remote coding crew means effectively using tools to cut through distance. You need ways to chat like email or online meet-ups, and quick message rooms. Getting together virtually can make talking immediate and easy, while quick messages share info fast.
Using organization tools such as Jira, Trello, or Asana is another must. These help the team work together, manage tasks, and keep tabs on progress, which is vital for a smooth-running remote team.
10. Monitoring and adjustments
It can be tough to keep a steady quality check with an offshore development center. Watching the center’s performance regularly, examining it often, and tweaking it for performance enhancement is critical.
There are different indicators for checking the performance of an offshore development center. Managers can monitor important performance metrics like speed graphs and completion reports. Also, they can carry out regular code checks to confirm the code’s quality and utility.
Popular locations for Offshore Software Development Centers
Asia is known as a rapidly advancing area for tech growth globally. Nations here have shown improvement and creativity in information technology. They’re fluent in English, have lots of top-notch IT experts, and are noted for their high skills. All these assets make Asia a magnet for setting up remote development centers.
Let’s look at some Asian countries that are perfect for setting up offshore software development centers:
India: India’s been a key player in the IT business from the 1980s. Now, it has over 1,140 worldwide software development centers. Around 50% of the top 500 global companies operate here.
China: A country packed with people and bustling in the tech industry, experiences speedy advancements and investigations in IT. The Global Innovation Index (GII) 2020, a yearly list ranking nations on their inventive efforts, puts China in 14th place out of 113 countries.
Philippines: For a while, the Philippines has found a spot as a leading choice for software outsourcing. More than 700 firms provide business process outsourcing (BPO) services in various regions and metropolises. The Philippines grips a 13% chunk of the worldwide BPO industry. The nation stands out for its strong work commitment, up-to-date facilities, and a big group of skilled workforce.
Vietnam: If you’re thinking about setting up an offshore development center mainly to cut costs, then Vietnam should be high on your list. You can save between 30-50% compared to costs in China and India if you choose Vietnam. Right now, Vietnam stands as a highly appealing hot-spot for IT services. It boasts a highly-trained workforce with excellent English skills. In 2022 alone, the Vietnamese software industry brought in a whopping $148 billion in revenue and provided jobs for more than 1.2 million people.
If it’s convenience you’re after, with less travel time, then you might find Eastern Europe quite appealing. True, setting up Offshore Development Centers there could be a bit pricey, but the trade-off is the chance to collaborate with supremely skilled experts who understand your cultural cues.
You might want to think about setting up Offshore Development Centers in some Eastern European countries. Poland and Romania are definitely options worth considering, among others.
Offshore Development Centers or ODCs are popular in the competitive business environment of today, allowing businesses to tap into global talent without exceeding financial limits. Despite providing a lot of perks, managing these remote teams can present some hurdles around communication, cultural differences, and keeping up with quality standards. Nevertheless, there are more than a few workarounds to these challenges, ensuring that the ODC model is used to its full potential.
A practical solution could be to team up with established software development companies overseas that already have Offshore Development Centers (ODCs). This option not only cuts down your administrative duties, but also streamlines the recruitment process, and handles the local laws and regulations research. This way, your main company can keep its attention on what truly matters – executing its key business objectives.
Nexle is a leading software development company based in Ho Chi Minh City, Vietnam. We are delivering on the world’s largest, most complex projects to transform the way governments, companies and communities work. We have been developing smart, technology-enabled solutions to solve our clients’ toughest challenges, demonstrating a commitment to excellence and a passion for exceeding expectations. Nexle is well positioned to be a partner and co-innovator to businesses in their transformation journey, identify new growth opportunities and facilitate their foray into new sectors and markets. We’re globally recognized for our innovative approach towards delivering business values and our commitment to client success.