Developing high-quality software products that meet the demands of the market takes time, effort, and knowledge. To overcome this, as well as deal with local talent shortages, companies choose to work with offshore development centers.
This is a popular business model that companies around the world use. Business leaders set up an office in another country, housing all required employees, and benefit from reduced operational and labor costs.
Both small startups and large enterprises find this model appealing as it allows them to establish a business presence in another country, access global talent, benefit from foreign policies, and guarantee business continuity.
Here, we will explore the importance, benefits, and considerations of establishing an offshore development center (ODC), focusing on every step necessary to successfully set up an office in another country.
Understanding Offshore Development Center Services
Establishing your own offshore software development center means building an offsite extension of a development company. Typically, it includes a cross-functional team, the required infrastructure, office equipment, amenities, and fully managed processes. This facility has everything necessary to carry the software development project to completion.
It operates under the same brand, sharing the parent company’s rules and policies. A dedicated team in the offshore development center operates similarly to regular in-house teams, following the company’s core business goals.
The purpose of an offshore development center is to provide scalable tech resources while reducing expenses. Companies can save significant portions of their project execution expenses, especially in infrastructure.
The client company has direct supervision over its offshore development center. There is usually a designated project manager, building the bridge between business leaders and the offshore team members responsible for the project execution.
Team structure ultimately depends on the requirements of the company and projects. However, typical roles include project managers, team leads, software engineers, front and back-end developers, QA engineers, UI/UX designers, and a few other administrative positions.
Companies with special data security requirements, large projects, scalability needs, smaller budgets, or the need to lower operational costs would greatly benefit from setting up an offshore development center. It’s also a good bet for companies that require niche specialists or need to delegate development processes to focus on core business activities for growth.
Offshore development centers benefit any company, regardless of type or size. Companies that often resort to this business model include software, eCommerce, fintech and IT companies, and data providers.
These facilities allow companies to access a wide variety of experts at affordable costs. They’re a great way for companies to scale quickly. They are particularly helpful when it comes to global expansion.
The Role of ODCs in Business
ODCs are business models that allow companies to focus on core business responsibilities while outsourcing their software development needs. With teams dedicated to specific projects, providing the stability and scalability the projects demand, companies can accelerate development and reduce their time to market.
Because the company has full operational control of offshore projects, it guarantees an efficient allocation of resources and the delivery of project milestones within predetermined time frames.
Benefits of Offshore Development Centers
ODCs are beneficial extensions of companies and help many top companies accomplish their development goals.
Cost Efficiency
One of the main reasons businesses turn to offshore development centers is to cut costs.
Companies usually set up these facilities in countries with lower costs of living, which also translates to lower salaries and reduced development costs, without sacrificing the level of professional expertise and the final quality of the product.
Savings on operating expenses come from spending less on office premises, infrastructure, electricity, technology maintenance and purchase, and other costs.
Companies can also expect savings in other expenditures such as office rent, taxes, and internet connection costs. Having access to experts at affordable prices and lower development costs, companies can invest more into their projects and create high-quality products for less money, which gives them a greater competitive edge in the market.
Access to Global Talent
Certain regions, such as Latin America, Eastern Europe, and Asia, have quickly become well-known as offshoring and outsourcing hubs, attracting even more talent and creating massive talent pools of skilled IT professionals. By establishing offshore development centers in these countries, companies have direct access to these trained experts.
Business leaders can assemble offshore software development teams with powerful skills, capable of working with the latest technologies and adapting to ever-evolving technology demands.
Instead of creating their own offshore development centers, certain companies prefer partnering up with pre-existing ODCs. In this case, the partner supplies vetted professionals with the required skills, knowledge, talent, and business processes for the project at hand. They guarantee that the offshore team follows international standards and has the capability of producing quality work.
Business Continuity
Business continuity refers to how ready an offshore development center is to maintain critical functions after any sort of disruption, such as security breaches. Since each member of the offshore team, regardless of their department, is an extension of the in-house team, they’re ready to establish and follow any risk management protocols in accordance with the parent company.
If the parent company faces a business disruption or setback, they can delegate important business tasks to the offshore development center. Because of their extended hours of work coverage, due to the time zone differences, offshore team members can ensure the continuous development of the project.
Setting Up an Offshore Development Center
Setting up an offshore development center requires some legwork upfront, but the result is often well worth the investment.
1. Defining Your Needs and Goals
Before beginning the process of establishing an offshore development center, business leaders must take some time to consider their vision, requirements, and scope of work for the projects at hand.
They must consider what type of work will take place at the offshore firm, which location is best, how large the offshore company should be, and the required skills for the team members. Other important questions to address at this stage include:
- The issues that the offshore development center would solve
- The available budget
- The level of control needed
- The type of entity management to choose
- The expected results
Well-defined needs and goals help business leaders better understand what offshore development center model they should choose and determine the right resources to allocate for the project.
2. Conducting a Feasibility Study
Feasibility studies evaluate a project’s practicality by evaluating all factors critical to its success. They determine the project’s strengths and weaknesses, potential opportunities and threats, required resources, and success prospects.
A feasibility study covers a few different areas such as technical, economic, legal, operational, and scheduling feasibility. For an ODC, it should focus on areas like financial implications, talent availability, legal considerations, and potential risks. Conducting a feasibility study before setting up an offshore development center can help identify and prevent any sort of project, corporate, and external constraints.
3. Choosing a Location
When choosing a location to establish offshore software development centers, companies should base their decision on the required technical expertise and cultural preferences, while also considering the possibility of unstable geo-political environments or currency volatility.
The location of your center will directly impact the parent company’s expenses, depending on the foreign employees’ salaries and rental costs.
Apart from the available talent pool and affordable salaries, consider regions that offer low costs of living, affordable tech education, high-speed internet connection, and experts with intermediate to advanced levels of proficiency in English.
4. Legal and Compliance Issues
Every country or region has its own set of laws and regulations, including employment laws, tax regulations, and data privacy rules, that companies must understand before establishing an offshore development center. This will allow avoiding any legal issues or additional expenses.
Companies often need the help of local lawyers or agencies to align with local laws and get a better understanding of the country’s taxes, labor law, FDI regulations, import and export policies, wage inflation, attrition, and overall legal landscape. Custom legal software development can be particularly valuable here, aiding in compliance and risk management.
5. Forming a Company or Partnering with an Established ODC
To establish a dedicated offshore development center on their own, companies should follow certain steps, including choosing a location, hiring legal consultants to address administrative issues, and registering the offshore firm as a legal entity.
Partnering with an offshore vendor allows for better and faster recruitment, avoiding administrative and management overhead, ensuring better flexibility and scalability, and mitigating security and legal risks through contracts. The parent company entrusts all human resources, administrative, and infrastructure processes to the offshore partner and saves a lot of resources by not having to invest in office space, infrastructure, and tools.
Business leaders need to take some time to search for the right vendor. They should begin by assessing the candidates’ working culture, track records, references, and relevant experience. It’s important to investigate the vendor’s portfolio, previous projects, and past customers’ reviews.
Before partnering with an established ODC, companies need to look for a good balance between quality and cost, guaranteed technical expertise, comprehensive experience with setting up R&D departments, company size, and vendor’s market reputation.
The initial communication—when the business leader first explains to the vendor their goals, product ideas, and expected results—is also a great way to determine if both parties are on the same page and assess whether there are any communication barriers.
6. Setting Up Infrastructure
In any scenario—whether or not the business chooses to outsource operations—establishing a reliable and secure infrastructure is imperative to ensure the offshore development center operates smoothly. This includes considering different options for office space, IT systems, hardware, software, internet connection, power supply, backup systems, and security measures.
Business leaders need to find, rent, and outfit the office; figure out the local tax system; hire recruiters and support staff; and finally recruit developers. It takes a lot of time and effort to establish an offshore development center, which is why many leading businesses delegate these tasks to a reliable ODC partner. Much of the burden is alleviated in an outsourcing scenario.
7. Building the Remote Team
The process of building the team for the offshore development center varies depending on whether the company builds the facility on its own or works with a vendor.
If a company builds an ODC from scratch, it requires a recruitment team responsible for creating descriptive and enticing job descriptions for all vacant positions, reviewing applications, and interviewing potential candidates.
The process is much simpler when working with an established offshore development center. The business leader communicates the specific professional needs of the project at hand, and the vendor will promptly provide profiles of suitable candidates.
In both situations, it’s important to analyze the experts’ skills, qualifications, and educational backgrounds. Recruiters should ask questions that will allow them to evaluate the candidates’ soft and hard skills, assess whether they align with the company culture, and determine if there are any communication barriers.
8. Training and Onboarding
When working with an offshore development team, companies should make an effort to make them feel welcome and in sync with the in-house team. All team members should understand what their role is and with whom they should communicate and approach when issues arise.
To help establish and maintain relationships between team members, business leaders should invest in coaching sessions, mentoring, and feedback meetings.
It’s important to introduce offshore team members to the company’s best practices as soon as possible. Establishing collaboration tools should also be a priority. Team collaboration tools such as Asana and Trello can contribute to the team’s productivity and organization.
They help prepare each teammate for their daily tasks, dictate project roles, and determine which solution is best for each situation. Conducting offshore training is imperative for team integration, solving cross-cultural issues, and ensuring that all experts adhere to company standards and goals.
9. Establishing Communication Channels and Procedures
Working effectively with an offshore software team requires establishing communication channels and procedures. Good communication tools allow for quick problem-solving and coordination between different departments. This is especially important when dealing with remote work because it requires constant communication between dedicated offshore software developers and stakeholders.
Companies should invest some time in learning how to manage communication challenges. Effective communication is key when it comes to the success of offshore development services. Issues can lead to delays, project failures, and misunderstandings.
They should also establish clear communication channels and protocols. Having multiple channels such as email, chat, and video conferencing can help ensure effective communication.
Video conferencing allows for more personal contact through real-time communication and also saves time and money on travel expenses for in-person meetings. Chat rooms and messengers are a quick and convenient way to disseminate and keep track of information.
Companies should also make use of project management tools such as Jira, Trello, and Asana to facilitate communication and collaboration between team members as well as task management and tracking.
10. Monitoring and Adjusting
It’s sometimes a challenge to ensure consistent quality across all projects when working with an offshore development center. It’s essential to monitor and review the ODC’s performance continuously, tracking key performance indicators, establishing feedback loops, and making necessary adjustments to accommodate positive changes.
There are many ways to monitor performance at an offshore development center. Business leaders can track individual performance metrics such as productivity rates and bug fix turnaround times, monitor overall team effectiveness through KPIs like velocity charts and burndown reports, and even conduct periodic code reviews to verify code quality and functionality.
Offshore Software Development Center Challenges
Although offshore development centers prove incredibly beneficial for companies, they don’t come without their own sets of challenges for businesses and their leaders to overcome.
1. Communication and Cultural Differences
When establishing an offshore development center both the parent team and the offshore firm will likely experience communication and cultural differences, depending on the country where the company chooses to establish its ODC.
Companies must foster effective communication between both parties. The best way to do that is by establishing good communication channels and procedures and hiring competent project managers that can manage remote teams and bridge the gap between stakeholders, leaders, and technical teams.
Companies also often find themselves dealing with cultural differences when working with people from different countries.
A good way to overcome this is by establishing and operating an offshore development center in a region with a similar culture. Cultural differences translate to language barriers and differences in working culture, attitudes to communication, and conflict management. While they might not seem like the most crucial challenge, they affect how companies make business decisions.
Business leaders help avoid or mitigate these barriers by personally interacting with the offshore team and discussing their visions. Other methods include conducting workshops, having team-building activities, and encouraging out-of-work interactions.
2. Quality Control
It can be difficult to control the development process and its quality when working with remote teams. It’s imperative that companies establish comprehensive quality control processes as well as invest in training and conduct regular audits and inspections. Companies should also establish their own set of quality assurance testing and rigorous standards for each and every project to help with controlling quality.
Conclusion
Today’s competitive market means that businesses must adapt quickly to accelerate growth. To keep up with current demands and maintain a competitive edge, many companies establish their own offshore development center. They help companies scale and innovate by offering access to affordable global talent, allowing business leaders to reduce overall costs and create less administrative hassle.
ODCs benefit companies of all sizes and industries. They’re a great option for companies that need assistance in creating new products from scratch or expanding an existing one, setting up an R&D center, or even freeing their in-house software developers so that they can focus on core business tasks.
The main benefits of establishing an offshore development company include cost efficiency, access to global talent, and business continuity. Unfortunately, this business model also comes with a few challenges due to working with remote teams from different countries. Companies often have to deal with communication and cultural differences and quality control issues when managing offshore development teams.
Luckily, there are quite a few ways to solve these problems and ensure that companies can take full advantage of this working model, from defining the needs and goals of the company and its projects to establishing an offshore development center.
Instead of creating an ODC from scratch, a company may decide to work with an established offshore software development company. Doing so releases the parent company of the responsibility of taking care of administrative tasks, recruiting and hiring the right candidates for their offshore software development team, and conducting extraneous research to better understand the country’s local policies and laws.
FAQ
What is an offshore development center?
An offshore development center is a company office set up in a different country that still operates under the same brand. It consists of a cross-functional team, management, and the necessary infrastructure to carry development to completion.
Why do companies set up a dedicated offshore development center?
Companies set up dedicated offshore development centers so that they can delegate software development projects and focus on core business responsibilities. They get to access a global talent pool that is much more affordable than local talent and also save money on office space and infrastructure by establishing their offices in countries with lower living costs.
Having talented offshore teams dedicated to their projects allows companies to accelerate development and reduce their time to market. Establishing an ODC allows companies to save a lot of money, which they can, in turn, invest in their projects to create improved products that will give them a competitive edge on the market.
What are the advantages and disadvantages of the offshore development center model?
The main advantages of the offshore development center model include cost efficiency, access to global talent, and business continuity. This business model also comes with some disadvantages, including handling communication and cultural differences and quality control issues.
