5/5 - (3 votes)

Introduction to setting up an Offshore Development Center

In our previous articles on the SPD Group blog, we covered various aspects of offshore software development, delving deep into the concepts of IT staff augmentation, managed services, and dedicated team models. However, there is a lot more we can talk about and even more information we can offer you in this domain.

This time we will focus on a situation where you need a considerable number of experts (let’s say 40 or more), with access to a wider talent pool in a country that has an excellent business environment. In these conditions, it would make sense to consider building a dedicated offshore development center (ODC) for your organization. We have briefly touched upon this topic before; but, in this article, you will find a more detailed overview of an ODC and learn how it can help you meet your existing software development needs.

Therefore, whether you require assistance in building your product from scratch, creating separate software services inside an existing software, setting up an R&D center, freeing up your in-house teams, or opening a separate branch office for an existing project in another country, building an offshore development center could be a viable option.

Don't have time to read about ODC? Book a free meeting!

Contact our experts to get a free consultation and time&budget estimate for your project.

Contact Us

What is a Dedicated Offshore Development Center?

An offshore development center is an office set up in a foreign country, comprising a team of software developers, project management and HR personnel, and staff of any other necessary functional departments. It is essentially a full-fledged branch of an organization in a different geographical location.

An offshore software development center can be considered a company’s technical representative office, which means that it functions under the same brand and shares the main office’s corporate policies. The teams in the ODC basically function as in-house teams, bringing value to the company and following its core business objectives.

Although the company head office decides the final structure of the offshore office, ODCs typically include the following roles:

  • Project Managers
  • Team Leads
  • Software Engineers
  • Front-End and Back-End Developers
  • QA Experts (Manual and Automation)
  • Web and UI/UX Designers
  • Tech Writers
  • The HR team and other office departments such as recruiting, marketing, etc. (optional)

Note: Having operational staff in the ODC is optional. You can delegate accounting, legal support, HR payroll, and recruitment functions to a local vendor. Besides, it is beneficial to have a vendor as a partner as it can provide you with additional insights on specifics of doing business in that country and also help with legal compliance.

This model is very appealing for both start-ups and large IT companies, as it enables them to establish their presence in another country and have lower costs at the same time. Having most of our staff in Ukraine and years of experience in operating in this region, we can look upon giants such as Samsung and Grammarly, which have offshore development centers in Ukraine.

Offshore Development Center Operating Models

1. Customer model

This model is more suitable for large enterprises. For instance, General Electric opened its ODC services in India 25 years ago.

In the customer model, the ODC operates as a subsidiary of the main company. All team members are full employees of your organization, with the only major difference being that the project is operating from a different location. There is an on-site group of senior employees to conduct management functions and make all key decisions. The development, testing, and execution are provided by the local experts. A typical structure for the customer model may look like this:

Learn what customer model for Offshore Development center is

2. Contractor model

In this model, offshore experts are not full employees of your organization, which lets you save on overhead costs from salaries. Based on the requirement, you can easily hire specific experts for the subprojects and remove them when their services are no longer needed. To illustrate a typical contractor model, take a look at this picture:

Learn what ODC contractor model is

Although this model is more suitable for start-ups and small and mid-sized companies, it can be leveraged by large corporations as well. In this format of collaboration, the in-house product or engineering managers communicate with the project manager at the ODC. All tasks are performed by the offshore team and reported back to the headquarters. With this approach, you can focus on the marketing of your product or working with your in-house teams, while the ODC will execute a certain part in the product development.

When Do You Need to Set Up Your offshore development center?

1. The project scope is big

For a minor project such as creating a simple mobile app, you can easily use other outsourcing approaches; however, when you are building something massive that requires continuous support and updates, for instance, an enterprise application for a leader in the fintech industry, you might find the ODC approach more suitable. After assessing the project requirements to define scope, time, and cost estimates, set up a dedicated offshore development center, and follow your goals!

2. You need a large and diverse team

As mentioned previously, if you require 40 or more experts in your team, you should certainly consider setting up an ODC. Additionally, while developing a complex solution, chances are that you will be working with diverse, and sometimes rare, experts in machine learning, data science, and cybersecurity. It would be a good idea to follow the ODC model and have those experts under one roof, which could be problematic with other outsourcing options.

3. You are building security-sensitive software solutions

When your project has substantial security-sensitive data, such as financial information and customers’ personal information, there could be devastating reputational and financial consequences in case of a data breach. Hence, when you require a powerful cybersecurity team for a security-sensitive project, an ODC model would work better than the other outsourcing approaches. Nevertheless, you could also have an in-house cybersecurity team as another option.

Need help with opening an ODC? Book a free meeting!

Contact our experts to get a free consultation and time&budget estimate for your project.

Contact Us

Offshore Development Center vs Outsourcing: What are the Key Differences?

Although both terms are often used interchangeably, there are distinct differences between the two—let’s break them down!

With IT outsourcing, external specialists are hired to boost the development and deployment of your software solutions, quickly scale up the project, and achieve higher cost-efficiency. These experts continue to be the employees of your software development partner and work with you only for the duration of a certain project. Your partner is responsible for meeting the deadlines and achieving targets. When the project is completed, the development team moves on to the next project set by your vendor.

Thus, hiring an outsourced team is a great choice for one-time projects, for example creating a website or Proof of Concept and MVP development.

In a customer model ODC, you are the employer of the entire team, as they are a part of your company. Nonetheless, you may need help from a local technology partner to form the team and set up an office. Your actions will tend to be more committed compared to people who work with you on a temporary basis, and the results will depend on your team’s efforts. When a certain project is complete, you will need to decide what to do with your employees.

Let’s compare the two approaches on the following key points:

Passion

Being a part of the project, software developers working for product companies typically show more dedication and interest in the outcome of the project. With the ODC approach, you have higher chances of attracting people with a product mindset who thrive on being a part of something great. That said, you can have outsourcing developers with a high level of commitment too, but you can certainly expect more passion from employees with an ODC.

Cost efficiency

The outsourcing option is probably cheaper, but with a limitation that your project is not going to scale much. The ODC requires up-front investments and additional time to assemble a team of experts and set up a properly functional office; however, in the long run, you can expect a higher Return On Investments (ROI) from it.

Management

You do not have any direct influence on the team of your outsourcing partner. The project managers on the side of your service provider can change the team composition or shuffle particular team members between projects. With an ODC, you are in complete control of the management and decision-making.

Benefits of Building Your Own ODC

Lower cost of software solutions delivery

In addition to paying lower employee salaries for the same level of expertise, you can expect savings in other expenditures such as payments for office rent, IT infrastructure expenses, or even taxes. This results in a reduced price tag for developing the software product.

Access to a wide talent pool

Operating in a country with a developed offshoring market, you can tap into a massive talent pool of skilled IT professionals. When a country becomes a well-known offshoring and outsourcing hub, it attracts even more talent. Although there is no guarantee that you will get the best team of professionals even in the finest offshoring location, your chances of assembling a powerful team capable of working with the latest technologies will be higher.

IP rights

Among other offshore development center benefits is the diminished risk of intellectual property (IP) rights. In a customer model, you will be required to collaborate with a third-party organization only while setting up your ODC, and no external persons would have access to the product during the development process.

Control and engagement

Every expert in the ODC will be a part of your team, just as your in-house team, with the only difference being the location. You can set up management processes exactly as you want, and expect more interest in your business from your workforce since they belong to your company. Speaking of visibility, you can set up reporting processes as per your requirement, and keep your finger on the pulse of the project.

Offshore Development Center Challenges & Risks

Contradictory pieces of advice

Opening an office in a foreign country requires you to consult different law firms, accounting specialists, and financial advisors who may provide you with contradictory information. To avoid this, it is advisable to find a partner who has years of proven experience in the region’s IT industry.

Recruitment challenges

There are cases when local recruiters appointed by a company fail to hire necessary IT experts in the shortest time to quickly form an effective team. It is suggested that the services of experienced recruitment agencies or a partnering company be utilized to assemble your initial team.

Management challenges

It is important to set up a management structure that will balance visibility and power to facilitate decision-making locally. If not managed properly, your ODC may potentially end up with the same communication problems that outsourcing might have had. You must ensure to have a project manager for each development team, follow the Agile approach, and set up reasonable communication practices.

Cultural differences

Incompatible cultural values are always a challenge when people from different countries work together, despite the best approaches to management and communication. Hence, it makes sense to operate in a region with a similar culture. For instance, if you are from the USA and want to set up an R&D center in Ukraine, Poland, Romania, or any other country in Eastern Europe, it could prove to be a better idea, from the cultural perspective, compared to opening your office in Asia. It does not imply that everything will run smoothly, but any possible friction from a cultural standpoint will be reduced.

Legal challenges

The legal landscape and business policies of a particular country can be a major obstacle in setting up and operating the ODC. Do rigorous research in this aspect and consult a local legal agency to prevent any possible issues when you make a decision to enter the new market.

Security challenges

As with any outsourcing and offshoring development, you should always be aware of security concerns. To mitigate risks and prevent any leakage of sensitive information, network security must be built into the infrastructure of your ODC. Additionally, you can conduct regular security audits and risk assessments to deal with security challenges specific to your situation.

How to Set Up an Offshore Development Center

Conduct research and analysis

First and foremost, you need to know whether an ODC is a good fit for your organization at all. Consider other options of outsourcing like the Dedicated Development Team model, Managed Services, and others. Make sure that the infrastructure of your organization is ready for collaboration with an offshoring partner if you choose to go with the contractor model. Finally, know exactly why you cannot meet your software development needs locally and what expertise you require before you consider an ODC.

Select location

There is a multitude of factors that attract companies to establish their ODC’s, including lower salaries and operational costs, accomplished technical skills, suitable time zones, and cultural similarities. Later in the article, we will discuss rates by country to provide you with a better understanding.

Find a partner

With a contractor model, you will need to find a trusted software development company to represent your organization in a foreign country. Likewise, with a customer model, you may require a local partner for setting up your office and helping you navigate through local legislation, business, and political situation, or you may choose to do it with the help of your existing team.

Start the recruitment process

Whether your team is in charge of recruiting or you seek help from a local partner, you will require skilled experts in your new location. Some companies consider it imperative to enter a new market using their own brand. With the ODC model, hiring people under your brand who will work within your corporate policies can be an additional benefit. Professionals are more likely to join an established and well-known organization compared to joining a less renowned software development partner.

Open an office

While your team is being assembled, it is time to think about office space. The location, availability of parking lots, security level, office planning, number of seats, and equipment are all very important factors for a productive working environment.

Get additional legal support

You may need the help of local lawyers or even the expertise of an agency to align with local laws and avoid any legal issues that might result in additional expenses.

Equip your office

Purchase all requisite equipment and set up adequate IT infrastructure for your new office, including computers and laptops, software, servers, security systems, and furniture.

Welcome new members

The onboarding process of the new employees begins and the first on-site meetings in the main office take place. Now your offshore development center has been officially opened!

Keep HR payroll and accounting in check

This is probably one of the most significant features in the functioning of your ODC. You will require a department or an employee in the office responsible for salaries, payments, money transfers, health insurance, and leaves.

Popular ODC Locations

Often, the financial cost of building your offshore dedicated center will primarily depend on salaries and real estate expenses. Let’s take a look at the most popular regions suitable for opening an ODC.

Asia

Among Asian countries, India remains the prime destination for offshore development center services, with 59% of respondents choosing this country, according to a survey by Deloitte. Additionally, India remains a country with the lowest salaries of software solutions developers.

Average software developer's salariew worldwide

In Asia, there are two leaders in terms of the talent pool—China and India. Both those countries have an impressive amount of talented software engineers and STEM graduates (science, technology, engineering, and math).

Learn in what regions you can find STEM graduates

India alone has over four million tech experts. Unfortunately, the skills of those experts are not always the highest. Yet, the fact is that India has both top software engineers and beginner-level vendors. However, if you are a start-up owner with limited time and budget, and lack experience in your niche, choosing to build your ODC in India may entail the risk of working with less proficient engineers who lack the skills to get the job done.

Eastern Europe

This region is a reasonable alternative to Asia, with more than one million IT experts available. Ukraine and Poland have the biggest talent pools in this region, with Ukraine alone having more than 1,500 software development companies.

With over 300,000 software engineers, Poland was placed at the 40th position in the “ease of doing business” rankings by the World Bank.

Ukraine is another standout country in the Eastern European region, with more than 200,000 software developers. Compared to the $110,000 plus annual salaries of software developers in the United States of America, in Ukraine, you can find professionals with the same level of expertise in the $30,000–50,000 range. Additionally, Ukrainian software engineers have abundant experience in remote work and operating as part of ODCs, and 70% of them have an intermediate to advanced level of proficiency in English.

What You Will Get With SPD

SPD Group has 15+ years of experience as an offshore development center services provider via the contractor model. One of our prime examples of such collaboration is our partnership with PitchBook, a 12 times CODIE Awards winner. At the moment, offices under the brand PitchBook in Ukraine contain more than 200 experts from SPD Group. Our team has developed products for PitchBook from the very beginning and remains a key development force for the entire organization.

SPD Group can be your partner—opening your ODC via contractor model or helping you build your office via customer model, thanks to our powerful recruiting department. We can also help you with any kind of software development outsourcing service. Feel free to contact us if you need a consultation or require any additional information to pick the best approach for your project and choose the right offshore software development partner!

There are two primary ODC models, the Customer Model and the Contractor Model. The principal difference lies in the fact that with the Customer Model ODC team is your employees, and with the Contractor Model, the team in ODC is not your full employees.

The key benefits include lower software delivery costs, access to a wider talent pool, securing your IP rights, more control and engagement.

The most popular regions include Asia and Eastern Europe. In these regions, you may find a high level of software development proficiency of experts with reasonable rates.

Have more questions about ODC? Ask our experts!

Contact our experts to get a free consultation and time&budget estimate for your project.

Contact Us