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20 minutes read

An Offshore Development Center: Explained

By Robert Kazmi
Offshore Development Center Explained
By Robert Kazmi
HiTech
20 minutes read
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An offshore development center (ODC) allows your company to access global talent, reduce operational costs, and maintain project control. Offshore development center services provide scalable tech resources and reduce operational costs, making them an attractive option for startups, SMBs, and large enterprises seeking to expand efficiently. As an extension of your home office, an ODC aligns with your company values while benefiting from the advantages of international talent. The offshore development center model offers a structured approach to setting up such operations, highlighting its characteristics, benefits, and strategic considerations. This guide covers everything you need to know about establishing and managing an effective offshore development center.

What is an Offshore Development Center?

A dedicated offshore software development center (OSDC) is an extension of a company in another country, staffed by a specialized team committed to various software development tasks. This model differs from conventional outsourcing because it functions under the primary company’s banner and adheres to its policies, thus ensuring a cohesive and managed operation. Companies can benefit economically through reduced expenses associated with lower living costs in the host nation while tapping into an extensive global talent pool of dedicated offshore software developers.

Dedicated teams at OSDCs provide sustained support for ongoing projects and the upkeep of existing products, serving as robust long-term solutions. These centers boast numerous benefits, such as adaptability, expandability, and the capacity to implement stringent security measures alongside risk management protocols that align with the priorities of their parent companies.

Incorporating these dedicated professionals into IT product teams boosts efficiency within software development processes significantly compared to traditional outsourcing methods, enhancing businesses’ speed-to-market delivery rates.

Key Benefits of an Offshore Development Center

Offshore development centers can notably reduce the costs associated with software development by offering lower salary demands and diminishing operational expenses within their local markets. Office space and technical apparatus are typically less expensive, reducing overheads. These offshore development teams can also make a wide array of specialized skills available to enterprises, heightening the value delivered via offshore development services.

By capitalizing on time zone discrepancies, offshore software development centers facilitate nonstop project advancement that propels continuous productivity for software projects—a pivotal factor for corporate success. Entrusting supplementary tasks to an overseas team enables businesses to concentrate more intently on primary business endeavors while fostering expert abilities through the services provided by these centers.

The agility these international entities offer in scaling operations up or down aligns seamlessly with fluctuating project requisites without being bound by typical limitations faced by domestic teams. This adaptability gives firms the means to respond to market shifts and evolving project needs promptly—thereby preserving their edge in innovation and competitiveness.

Cost Savings

Hiring a dedicated development team can result in significant cost savings, ranging from 39% to 72%, depending on the location, compared to hiring an onshore team. Offshore locations typically have a lower cost of living, which translates into lower labor costs. Additionally, infrastructure costs, such as office rent, are generally lower in offshore locations. Certain jurisdictions also incentivize the tech sector through tax incentives, contributing to reduced rates overall. By leveraging these cost advantages, companies can allocate their resources more effectively and invest in other critical business areas.

Access to Global Talent

Recruiting developers with the right skills remains a top challenge for 50% of businesses. Offshoring removes geographical constraints and expands the available talent pool, facilitating and speeding up recruitment. By extending the tech talent search to offshoring locations, companies can find experts in emerging technologies, such as deep learning, computer vision, and extended reality. This access to a diverse and skilled workforce enables businesses to stay at the forefront of technological advancements and drive innovation in their projects.

Business Continuity

An offshore development center can provide valuable input to help navigate the market or region where it resides. The ODC team can be tasked with identifying and addressing the peculiarities of the local market or region, enabling faster time-to-market for new features or products. Additionally, continuous coverage provided by the offshore team can benefit maintenance and support tasks, ensuring the business operates smoothly around the clock. This strategic advantage allows companies to maintain high levels of service and responsiveness, even during unforeseen disruptions.

Quality of Hiring

While offshoring offers access to a global talent pool, it presents new challenges regarding effective hiring techniques. Navigating a new location can be difficult, as labor markets and rules differ from one country to another. Therefore, choosing an experienced recruitment provider who understands the local market dynamics is crucial. Researching the median level of wages in the local IT industry and providing a competitive salary range for each position are essential steps in attracting and retaining top talent. By implementing these strategies, companies can build a solid and capable offshore development team that aligns with their business goals.

Retention of Employees

Employee retention is a crucial aspect of maintaining a thriving offshore development center. To ensure that your offshore development team remains engaged and motivated, consider the following strategies:

  • Competitive Salaries and Benefits: Offering salaries and benefits that are competitive with industry standards in the offshore location is essential. This helps attract top talent and ensures your team feels valued and fairly compensated for their work.
  • Opportunities for Growth and Development: It is vital to provide employees with opportunities to grow and develop their skills. Implement training programs, mentorship opportunities, and clear career advancement paths. Investing in your team’s professional development can increase job satisfaction and loyalty.
  • Positive Work Environment: Fostering a positive work environment that promotes collaboration, open communication, and recognition of employee achievements is key. Encouraging a culture where team members feel supported and appreciated significantly boosts morale and productivity.
  • Flexible Work Arrangements: Offering flexible work arrangements, such as remote work options or flexible hours, can help employees balance their work and personal lives. This flexibility can lead to increased job satisfaction and retention.
  • Regular Feedback and Recognition: Providing regular feedback and recognition to employees is crucial. Conduct performance reviews, offer bonuses, or give awards to acknowledge their hard work and contributions. This recognition helps employees feel valued and motivated to perform at their best.

Implementing these strategies can help you retain your offshore development team and ensure that they remain motivated and engaged in their work.

How Does an Offshore Development Center Operate?

An offshore development center is an extension of the client company, adhering to its brand and guidelines while being managed directly by the client. The composition of an offshore software development team includes professionals with diverse expertise, such as software engineers, QA engineers, designers, and team leaders. To ensure streamlined operations aligned with the leading company, these teams typically employ management tools like Asana or Jira for project tracking.

The operational frameworks for ODCs are primarily categorized into the Contractor Model and the Customer Model.

Contractor Model

The contractor model is a form of outsourced development in which offshore developers are given particular assignments to complete under the guidance of domestic product managers. This structure enables businesses to retain managerial oversight over their projects’ trajectory while reaping the cost-efficiency benefits of outsourcing labor. It ensures that the focus remains on designated tasks, allowing internal managers to supervise overarching project strategies and integration efforts.

A significant benefit of adopting this contractor approach lies in its inherent ability to provide agility within project management processes. Domestic team leaders can alter workloads and directives as necessary, which helps keep projects aligned with intended outcomes. Robust communication and collaboration between home-based teams and their offshore counterparts are crucial for this arrangement’s success. Such interactions prevent miscommunications and confirm consistent adherence to agreed-upon project objectives.

Customer Model

The customer model employs an offshore development center strategy, wherein the center operates like a branch that houses full-time employees under the guidance of on-site senior leadership. This structure promotes cohesion by assimilating offshore team members into the company’s culture, as they adhere to identical corporate practices and goals. On-site executives guarantee that these teams uphold corporate objectives and quality standards.

A notable benefit of adopting this customer model is its provision for enhanced management control and supervision capabilities. The stationed senior managers enable close observation of the execution of offshore development activities, ensuring alignment with strategic business aims.

Build-to-Scale Offshore Development Center Model

The Build-to-Scale offshore development center model is popular for companies looking to establish a dedicated offshore development team. This model involves partnering with an offshore development company to build a team of developers, testers, and other IT professionals who work exclusively on your projects.

Build-Operate-Transfer (BOT) Offshore Development Center Model

The Build-Operate-Transfer (BOT) offshore software development center model is another popular choice for companies looking to establish a dedicated team. This model involves partnering with an offshore development company to build and operate a team of developers, testers, and other IT professionals who work exclusively on your projects.

Setting Up an Offshore Development Center: Step-by-Step Guide

Establishing your offshore development center necessitates meticulous preparation and implementation. This undertaking encompasses numerous imperative phases, which include delineating your requirements and executing a viability analysis, pinpointing the optimal location, and establishing the necessary infrastructure. Each phase must be meticulously attended to to guarantee that the ODC functions efficiently and corresponds with your corporate aims.

We shall now delve into the comprehensive procedures required to establish a thriving offshore development center.

Define Your Needs and Goals

Initiating an offshore software development center necessitates precisely delineating your business aims and needs. Company executives should contemplate their strategic vision, the specifics of their requirements, work scope, the type of project underway, geographical considerations, the breadth of the offshore entity’s capabilities, and essential competencies. Acknowledging these elements will steer the creation process for the ODC in a direction that corresponds with corporate goals.

Comprehending legalities and adherence necessities before embarking on an ODC venture is imperative. This covers understanding local employment laws, taxation regulations, and privacy statutes regarding data within the country hosting your operations. The absence of defined systems and structured procedures can lead to significant obstacles when directing offshore teams. Establishing clear communication channels and protocols from day one is vital for effective management.

Conduct a Feasibility Study

Evaluating a project’s viability through a feasibility study is essential in understanding its potential for success. This critical analysis assesses both positive aspects and possible shortcomings and the resources necessary to carry it out. It helps pinpoint and circumvent obstacles that may affect project completion, which could stem from business-related or external influences. The scope of such a study spans multiple domains, encompassing technicality, economy, legality, operations management, and timelines.

Choose the Right Location

Selecting an optimal site for your Offshore Development Center is imperative for its triumphant operation. Essential considerations include expenses, the availability of skilled professionals, infrastructure quality, and the region’s political stability. Striking a balance between accessing a competent talent pool and maintaining cost efficiency is vital to procuring the required expertise without overspending.

Decide Between DIY and Vendor Approach

Companies can establish an ODC or collaborate with a service provider like Luxoft to ease the setup process. Opting for collaboration allows businesses to leverage benefits like improved recruitment processes, reduced overhead costs, enhanced operational flexibility, and decreased exposure to legal risks.

Conversely, choosing the DIY method entails creating a new branch from scratch, which includes managing all aspects of legalities and accounting practices, hiring personnel, and overseeing managerial duties independently. This route requires considerable dedication regarding financial resources and time but provides increased oversight throughout development.

Set Up Infrastructure

Creating the foundation for your Offshore Development Center (ODC) is a pivotal action that guarantees efficient functionality. Crucial aspects of this infrastructure involve various elements, such as allocating office space, implementing IT frameworks, acquiring hardware and software resources, ensuring consistent internet access, providing power supply solutions with backups in place, and taking necessary security precautions. Establishing an unwavering internet connection serves as the cornerstone to facilitate uninterrupted communication and teamwork among colleagues.

Recruit and Onboard the Team

Setting up an Offshore Development Center depends on the staff’s careful selection and integration. While companies establishing ODCs are in charge of their hiring procedures, partnering with an ODC provider can give them access to a pre-existing talent pool to support finding suitable candidates. Job postings must accurately detail the expected responsibilities and roles to attract qualified individuals.

The onboarding process is key to aligning offshore developers with company culture, including expectations, work ethic standards, processes followed, and leadership methods. This alignment fosters cohesion between remote workers and their domestic counterparts by clarifying positions held within both teams while ensuring they communicate effectively. Offering competitive wages within the local market ensures that these valuable team members remain motivated and committed.

Monitor and Adjust

Consistent observation and performance evaluation are crucial for preserving excellence and efficiency in an Offshore Development Center. Monitoring individual metrics and key performance indicators (KPIs) and conducting regular code reviews are tools for tracking progress. This method of performance oversight promotes responsibility among team members and pinpoints opportunities for advancement.

Conducting frequent reviews at set intervals is vital to enhancing operations’ effectiveness by quickly discovering and resolving any challenges. Companies can confirm that their ODC remains congruent with their objectives through relentless assessment and procedure modification while consistently producing superior-quality outcomes.

Common Challenges and Solutions in Managing an ODC

Managing Offshore Development Centers (ODCs) has many advantages but poses various hurdles. Such obstacles encompass difficulties in communication, cultural differences, and maintaining quality control. Nevertheless, implementing appropriate strategies and solutions can adeptly address these challenges to guarantee the successful operation of the ODC.

Below is an elaborate discussion of frequent challenges encountered and their corresponding resolutions.

Communication and Cultural Differences

For offshore development projects to succeed, robust communication is imperative.

Issues in communication can lead to setbacks and unsuccessful projects, stemming from misinterpretations that could arise.

Utilizing various resources such as email, chat services, video conferencing platforms, and dedicated project management tools can enhance the efficiency of correspondence among members of an offshore team.

Cultural disparities might cause tension and confusion between on-site and offshore teams. To alleviate this issue, imparting cultural sensitivity education can help team members better comprehend each other’s backgrounds. This approach promotes a more unified work culture. By setting up definite channels for communication along with consistent updates through regular meetings or check-ins, it’s possible to diminish the impact of cultural nuances and communicative obstacles.

Quality Control

Maintaining high-quality software is imperative in offshore development endeavors. This necessitates the inception of explicit quality standards, which involves setting definite criteria for project results and aligning all team participants with these expectations. Vigilant quality supervision throughout the development progression is critical, requiring frequent code inspections and adherence to continuous integration methods to identify flaws promptly.

Risk Mitigation and Security

Risk mitigation and security are critical considerations when establishing an offshore development center. Here are some strategies to help mitigate risks and ensure security:

  • Conduct Thorough Research: Conduct thorough research on the offshore location and development company to ensure they have a good reputation and a strong track record of delivering high-quality services. This research can help you avoid potential pitfalls and select a reliable partner.
  • Establish Clear Communication Channels: Establish clear communication channels with the offshore team to ensure you can quickly address any issues or concerns. Regular meetings, updates, and collaboration tools can enhance communication and coordination.
  • Implement Robust Security Measures: Implement robust security measures, such as encryption and access controls, to protect your data and intellectual property. Ensure that the offshore team follows best practices for data security and complies with relevant regulations.
  • Develop a Comprehensive Risk Management Plan: A comprehensive risk management plan outlines potential risks and mitigation strategies. This plan should cover various scenarios, including data breaches, project delays, and other possible issues.

By implementing these strategies, you can help mitigate risks and ensure the security of your offshore development center.

Offshore Development Center vs. In-House Team

Deciding between creating an offshore development center or maintaining an in-house team necessitates a thorough analysis of each choice’s advantages and shortcomings. An offshore development facility, which functions with the same brand as its parent entity, promotes adherence to shared procedures and ideals. This model provides companies access to international expertise and economic efficiencies that are often harder for an in-house team due to elevated operational expenses and restricted talent available locally.

Conversely, keeping development within the company bolsters data security since all operations remain internalized. It also fosters a persistent accumulation of knowledge and preserves know-how inside the firm. The immediacy of interaction among members of an in-house group can boost efficiency while simplifying quick troubleshooting.

This crucial decision should be based on alignment with the enterprise’s overarching aims and specific functional requirements.

Legal and Compliance Considerations

Prioritizing legal and compliance issues when establishing an ODC is imperative. Adhering strictly to the host country’s laws is key to preventing legal entanglements. Corporations must also consider how foreign investment regulations could impact their activities within that nation, making local legal guidance invaluable for mastering intricate tax structures and adherence protocols.

Given that employment statutes differ across nations, comprehensive research is essential to guarantee adherence to appropriate labor standards. Data security and confidentiality are significant concerns. Hence, comprehending data privacy laws while instituting robust safeguards is fundamental to securing confidential client information and intellectual property.

Ensuring contracts have explicitly defined stipulations concerning the rights over intellectual property is critical in averting future conflicts.

Best Practices for Successful Offshore Development Centers

To achieve success with an offshore development center, it’s crucial to prioritize excellent communication. The following strategies can help strengthen the connection between teams:

  1. Leverage collaboration tools such as Slack and Zoom to foster better team interaction.
  2. Schedule routine meetings to share project progress. This is essential for keeping teams unified and focused on common goals.
  3. Invest in ongoing training and professional growth initiatives to uphold software quality standards while attracting and retaining high-caliber personnel.

Implementing these tactics will cultivate a dynamic, cooperative setting within your offshore development hub.

Incorporating agile methods can introduce greater adaptability into your workflow processes while hastening the delivery times of projects. For efficient teamwork across diverse geographical locations, integrate cloud-based systems that enable smooth cooperation among all team members. Building a culture with constant encouragement for feedback and pioneering thinking from staff members is equally critical.

Conducting systematic audits and thorough evaluations remains imperative when overseeing offshoring teams’ output quality control standards.

How to Choose the Right Offshore Development Company

Choosing the right offshore development company is a critical decision that can significantly impact your projects’ success. Here are some factors to consider when selecting an offshore development company:

  • Experience and Expertise: Look for a company with experience and expertise in your industry or technology stack. A company with a proven track record in similar projects is more likely to deliver high-quality results.
  • Reputation and References: Check the company’s reputation and references to ensure they have a good track record of delivering high-quality services. Client testimonials, case studies, and industry awards can provide valuable insights into the company’s performance.
  • Communication and Collaboration: Evaluate the company’s communication and collaboration style to ensure they can work effectively with your team. Clear and open communication is essential for successful project execution.
  • Pricing and Value: Compare the company’s pricing and value proposition to ensure they offer competitive rates and a good return on investment. Consider the overall value they provide, not just the cost.

Considering these factors, you can make an informed decision and choose the right offshore development company for your needs.

Evaluate Their Expertise

Evaluating the expertise of an offshore development company is a critical step in the selection process. Here are some factors to consider:

  • Technical Skills: Evaluate the company’s technical skills and expertise in your industry or technology stack. Ensure they have the skills needed to meet your project requirements.
  • Industry Experience: Check the company’s experience working in your industry or with similar projects. Industry-specific knowledge can be a significant advantage.
  • Certifications and Awards: Look for certifications and awards demonstrating the company’s expertise and commitment to quality. Recognition from reputable organizations can be a good indicator of the company’s capabilities.
  • Case Studies and References: Review case studies and references to see how the company has delivered value to other clients. This can provide insights into their problem-solving abilities and project management skills.

By evaluating these factors, you can understand the company’s expertise and whether they have the skills and experience to deliver high-quality services.

Summary

Establishing an offshore development center can provide many benefits, such as reducing expenses, tapping into worldwide expertise, and enhancing project delivery schedules. Adhering to a structured guide while implementing established methods allows enterprises to adeptly handle the hurdles linked with ODCs and fully leverage their potential. Opting between contractor or customer models necessitates meticulous preparation and implementation for an effective strategy in offshore development. Embark on this venture now to revolutionize your business operations through an ODC.

Frequently Asked Questions

Key Characteristics of an ODC

A dedicated offshore development center (ODC) is characterized by several key features distinguishing it from traditional outsourcing models. Firstly, the software engineers work under the same brand as their head office and follow standard corporate policies, ensuring consistency and alignment with the parent company’s values and objectives. This cohesive approach fosters a unified work culture and seamless integration with the main office.

Secondly, an ODC comprises diverse specialists, including software engineers, QA engineers, back-end and front-end developers, web and UI/UX designers, technical writers, and team leads. This diversity allows the ODC to handle various software development tasks and deliver comprehensive solutions.

Lastly, the offshore software development center operates on a flexible and scalable business model, enabling companies to adjust the team size and composition based on project requirements and market demands. This adaptability ensures businesses can efficiently manage their resources and respond promptly to changing needs.

What are the key benefits of an ODC?

The key benefits of an ODC include:

  • Cost efficiency.
  • Access to a diverse talent pool.
  • Continuous project development.
  • Enhanced focus on core business activities.

Leveraging these advantages can significantly improve overall organizational performance.

How does the contractor model operate in an ODC?

The contractor model in an ODC enables offshore programmers to execute specific tasks while being guided by in-house product managers, thus ensuring flexibility and maintaining control over the project’s direction.

This approach fosters a collaborative environment that aligns with organizational goals.

What should be considered when choosing a location for an ODC?

When selecting a site for your own Offshore Development Center (ODC), factors such as the cost of operations, availability of skilled talent, quality of infrastructure, and political stability in the region must be considered.

In-depth analysis of market trends and evaluation of the depth of the local talent pool are critical steps to ensuring that a well-informed choice is made.

How can quality be controlled in an ODC?

Precise quality benchmarks, systematic code inspections, and continuous integration practices are essential to maintaining quality within an offshore development center (ODC).

Nurturing a culture of feedback and executing frequent audits are vital to securing consistently high-quality outcomes.

In summary, establishing an offshore development center (ODC) can revolutionize your business operations by providing significant cost savings, access to global talent, and continuous project development.

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