What Is an Offshore Development Center? Key Insights and Benefits

A new project, expanding customer base, demand for more advanced features, rapid company growth, and many other reasons may force you to scale your team. But then, you suddenly find yourself grappling with talent shortages, high operational expenses that go against your budget, and the logistical challenges of catering to a global customer base.

An Offshore Development Center (ODC acronym) can reduce the risk of experiencing such issues without sacrificing quality. This article will explore the Offshore Development Center’s meaning and value, as well as ways to overcome possible drawbacks and steps to set it up.

What Is an ODC? Core Concepts

An ODC provides a more integrated and controlled environment for a remote team in another country that acts as an extension of your team. Unlike a traditional outsourcing provider, creating an ODC is like opening your own office overseas, but delegating its management to another entity. You can also define ODC as a nearshore development center, which sets it in a closer time zone.

ODC Definition

An Offshore Development Center is a business model used for various tasks from software development and testing to analytics and technology improvement. The team operates like a self-sufficient company which work is dedicated to a specific project.

An offshore development team can reduce the financial strain on the project since it will operate in a different economy often with lower rates and a different taxation system. Moreover, the talent pool varies globally so that you can find valuable team members with expertise in specific technologies or domains.

An Offshore Development Center can be an extension of your tech team or entirely substitute it. With both options, you can focus on core business processes, reduce the time to market, and scale as needed.

Examples of Projects That Offshore Development Center Can Handle

Here, we explore several examples of how an ODC can help extend or substitute the in-house team. While the list can continue, these few types will give a better understanding of how you can leverage the Offshore Development Center model.

Project Types Managed by ODC

• New product development
• Building a new feature for an existing product made in-house
• Scaling an existing project to expand operations globally
• Maintaining an existing product
• Legacy system support

New product development

A FinTech startup aims to develop a new digital wallet app for international money transfers. With limited in-house resources and a need for diverse expertise in blockchain, cybersecurity, and UI/UX design, setting up an ODC would ensure end-to-end product development, including prototyping, testing, and deployment.

Building a new feature for an existing product made in-house

A health tech company, has an established fitness tracking app but wants to add AI-powered health recommendations. A dedicated offshore development team would help expedite the process and focus their in-house team on other core features. A team specializing in AI/ML development can take on this feature enhancement while collaborating with the in-house team to ensure seamless integration.

Scaling an existing project to expand operations globally

A European company that offers an e-learning platform wants to expand to Asia. To cater to new markets, it needs to localize its platform, add multi-language support, integrate regional payment systems, and adapt the user interface. In such a case, an ODC would leverage local expertise of developers familiar with European and Asian user preferences.

Maintaining an existing product

An e-commerce platform, has an existing product that requires constant monitoring and updates to keep pace with user demand and industry changes. The in-house team is busy on the company’s new project, and it’s falling behind on maintaining the application. Establishing an ODC in this case would reduce the load on the in-house team focusing on identifying and fixing bugs, implementing minor feature updates, and providing 24/7 support to maintain the product’s stability and performance.

Legacy system support

A retail company still relies on a legacy system for one of its critical client-facing tools. While the in-house team is focused on building a modern replacement, the company requires continued support for the legacy system. Setting up an ODC will provide the company with a team to manage system maintenance, address compatibility issues, and ensure compliance with ongoing client requirements until the transition to the new system is complete.

Offshore Development Center Benefits

While some ODC types provide more flexibility than others, overall, this business model has certain advantages over in-house recruitment.

Key ODC Benefits and Challenges

• Lower operational expenses
• Reduced recruitment efforts
• Access to global talent
• Faster time to market
• Risk mitigation
• Administrative burden relief
• Resource allocation flexibility

• Initial setup costs and efforts
• Digital security risks
• Language and cultural differences
• Management complexity

The benefits of offshore development include:

• More efficient and profitable resource allocation. Hiring more people in-house strains any budget due to recruitment costs and employee benefits. With an ODC, you can optimize all expenses related to employee management and office support. Cost efficiency comes from the foreign economy, which sets lower labor, rent, utility prices, etc.
• Business continuity. In case of cyberattacks, natural disasters, and other circumstances that can disrupt your headquarters operation, a software offshore development team can take over and continue developing your project. Simply put, it’s like keeping money in different bank accounts – you reduce the possible damage brought on by situations out of your control.
• Access to global talent. Most countries experience talent shortages. According to the International Data Corporation (IDC), the IT skills crisis will impact 90% of organizations worldwide by 2026. However, looking outside your country’s borders increases your chances of finding skilled IT specialists.
• Faster time to market. For some projects, requirements may change when a piece of tech is already in the works. Extending the team can help complete more tasks in the pre-existing time frame, so you have better chances of launching the product within your desired market deadline. Additionally, local recruiting vendors know the legislative system better, accelerating the setup process.
• Enhanced market fit. Foreign expertise and cultural differences can help produce a product that will satisfy global audiences. The ODC team can provide a wider outlook on local user behavior and help elevate your strategies

ODC Challenges and Ways to Overcome Them

A remote software development center may present specific challenges. Knowing how to solve them can help reduce any associated risks.

How to Set up an Offshore Development Center

Setting up an ODC typically involves outlining objectives, selecting the location, researching legal requirements, hiring team members and arranging the infrastructure, developing a management plan, and more. This section will guide you through the essential steps in this process.

Understand what you want to achieve by using an ODC

While money is a common trigger for many businesses, the need for an ODC may come from various challenges. Joseph Fung, the co-founder and CEO of Uvaro, says businesses may struggle to find the right talent, need to start or fix a project, or want to take their business in a new direction without distracting your team. Understanding your motivation will help you choose an optimal location and create a more effective plan for project execution.

Research potential locations

Look at different aspects like talent availability, cost of living, political and economic stability, time zone compatibility, etc. You can find reports and insights about these aspects on different platforms:

• LinkedIn Talent Insights can provide data on the availability and skills of professionals in different regions.
• Gartner, McKinsey, or Deloitte publish analyses of global IT hubs and workforce trends.
• Local job portals offer information on the talent pool size and expected salaries.
• Real estate platforms provide insight into the cost of living.
• The Speedtest Global Index shows data on internet speed rankings by country.
• HackerRank offers reports on developer skills and mindset.
• Legal services can explain the local laws and regulations.

Shortlist offshore IT development locations based on key priorities (e.g., cost, talent, time zone) to run feasibility studies. They help evaluate infrastructure, legal environment, and potential risks to narrow down your options.

Establish a local partnership

Once you select a country, find an agency that understands the regional market and legal requirements. This partner will take over the administrative burden, help recruit team members, set up the required infrastructure, and maintain a working environment.

Develop a management plan

A management plan outlines strategies, frameworks, and processes to ensure the ODC operates effectively and aligns with the company’s goals. It should specify the scope of work, and key deliverables, clearly define what each role is accountable for, include talent acquisition and workforce scaling plans, describe what methodologies and knowledge-sharing systems the ODC will use, set KPIs, and much more.

Plan and execute structured technical interviews

It’s crucial to hire people you can trust, so interviewing potential candidates demands preparation. There’s no point in giving a recruiter a list of the right answers to technical questions, as this won’t help evaluate how the candidate approaches problem-solving and why their answers may differ. While recruiters can gauge the soft skills, you need a specialist who can conduct technical assessments.

Best Practices for Managing an Offshore Development Center

This section explores a few unobvious best practices that can help you maximize the potential of your Offshore Development Center.

1. Create an environment where people can ask questions

In some cultures, asking questions is not the norm, and specialists may feel uncomfortable clarifying task details or even the whole project specifications. To solve this issue, you can add a requirement review stage to normalize this process. For example, this can be a subtask that should result in a list of questions. Another helpful practice, in this aspect, is creating a feedback loop to address any concerns before they affect your goals.

2. Manage the project, not people

Holding team members under your watchful eye, explaining how to do every little task that the specialist knows anyway, and controlling every aspect of the work leads to micromanagement. This slows down the team overall and causes delays in the entire project.

Instead, focus on creating an environment where the team can meet the project goals. This can manifest in a well-structured backlog – ensure complete task requirements and clear outcomes. Setting clear objectives and measurable KPIs to evaluate the progress also helps keep your requirements transparent.

3. Treat the ODC as part of your team

Setting up an Offshore Development Center is like opening an office in another country, with the distinction that you’re delegating its management to a local entity. While physically in different places and, usually, time zones, you still share a common space – the Internet. So the best strategy is to view the ODC as a remote team:

• Align them with a shared sense of purpose.
• Include the ODC team in strategic meetings and business updates.
• Conduct cross-team workshops or hackathons to share knowledge and build relationships.
• Share company news, updates, and announcements with the ODC team.
• Acknowledge ODC achievements and contributions in team meetings, newsletters, and public forums.

4. Plan for scope changes

Define a structured process for handling scope changes, and ensure that every milestone has a review stage. Allocating a percentage of the budget for unforeseen changes can also help reduce the risk of the project failing. From the legal perspective, include contract terms allowing for a certain percentage of changes without renegotiating the ODC contract.

Final Takeaways on Offshore Development Center Model

Offshore Development Centers offer a strategic solution to common challenges like talent shortages, high operational expenses, and global market demands. The advantages of an Offshore Development Center allow you to tap into global talent, optimize resources, and accelerate time-to-market without compromising quality.

However, establishing and managing an ODC requires thoughtful planning, from selecting the right location to building a robust management framework and promoting effective teamwork. By treating the ODC as an integral part of your organization and leveraging best practices, businesses can maximize the potential of this model, ensuring seamless operations and impactful outcomes.

Frequently Asked Questions About ODC

How does an Offshore Development Center differ from outsourcing?

Outsourcing means delegating a portion of the business processes to a third-party provider. An offshore development outsourcing vendor is an established company that offers services like software development to multiple clients. It forms a team for a client’s project from existing employees; however, it can also offer to set up an ODC as a separate service. Unlike ODC, an outsourcing provider doesn’t necessarily have to be from another country.

How do you choose the right location for an Offshore Development Center?

When building an Offshore Development Center, look for regions with a large talent pool of experts offering the skills required to complete your project. Then, investigate them for average salaries, the cost of living, tax rates, and other expenses to gauge whether any of them will be a cost-effective option for your budget. Other factors to consider include time zone differences, language and communication skills, cultural fit, and economic and political stability.

How can I effectively manage an Offshore Development Center remotely?

An effective management strategy requires strong communication practices including verbal skills and collaboration tools (e.g., corporate messenger, task tracker, version control system). Your communication plan would benefit from regular check-in meetings to evaluate the progress and align further steps with the project goals. On the project management side, using agile practices helps break the project scope into achievable milestones. This leads to better deadline adherence.

How can I ensure the quality of work in an ODC?

Clear quality standards and expectations form the basis for evaluating the quality of work. This may include defining what “done” means for outcomes, providing examples of high-quality work, and documenting coding standards. A good practice is to create a shared repository for these guidelines, so any specialist working on the project can access them as needed.

What factors influence the cost of setting up and maintaining an Offshore Development Center?

When defining the ODC cost, you should factor in various initial and ongoing expenses. These include office rent, equipment, technology setup, hiring and onboarding, legal and administrative fees, employee salaries, recurring costs like utilities and office maintenance, travel, etc.

What should businesses expect when planning to set up an ODC?

Setting up an Offshore Development Center (ODC) involves significant efforts in planning, recruitment, legal compliance, and establishing operational workflows, which can take several months. The timeframe may vary depending on factors, such as the size of team you need to hire, whether you need to open a physical office, and the availability of resources. For example, you may need more time to take care of the legal aspect. Businesses should also anticipate costs for infrastructure, hiring, and ongoing maintenance, along with potential challenges like cultural differences, security risks, and management complexities.

Consider whether the ODC model fits your project goals and provides a strategic advantage in the competitive landscape.

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