What is an Offshore Development Center? Unlock global talent

Developing high-quality software products that meet market demands takes time, effort and knowledge. To overcome this situation, as well as deal with the shortage of local talent, companies choose to work with offshore development centers.

This is a popular business model used by companies across the world. Business leaders establish an office in another country, housing all necessary employees, and benefit from reduced operational and labor costs.

Both small startups and large companies find this model appealing, as it allows them to establish a business presence in another country, access global talent, benefit from external policies and ensure business continuity.

Here we will explore the importance, benefits and considerations of establishing an offshore development center (ODC), focusing on all the steps required to successfully establish an office in another country.

Understanding Offshore Development Center Services

Establishing your own offshore software development center means building an external extension of a development company. Typically, it includes a cross-functional team, necessary infrastructure, office equipment, amenities, and fully managed processes. This installation has everything needed to take the software development project to completion.

It operates under the same brand, sharing the parent company's rules and policies. A dedicated team at the offshore development center operates in a similar way to regular in-house teams, following the company's main business objectives.

The goal of an offshore development center is to provide scalable technological capabilities 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 executing the project.

The 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 a need to reduce operational costs would greatly benefit from setting up an offshore development center. It is also a good bet for companies that need niche experts or need to delegate development processes to focus on business activities essential for growth.

Offshore development centers benefit any company, regardless of type or size. Companies that frequently use this business model include software, e-commerce, fintech and IT companies, and data providers.

These facilities allow companies to access a wide range of experts at affordable costs. They are a great way for businesses to grow quickly. They are particularly useful 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 that projects require, companies can accelerate development and reduce time to market.

By having full operational control of offshore projects, the company guarantees an efficient allocation of resources and the delivery of project milestones within pre-determined deadlines.

Benefits of Offshore Development Centers

ODCs are beneficial extensions of companies and help many important companies achieve their development goals.

Cost efficiency

One of the main reasons companies turn to offshore development centers is to cut costs.

Companies typically locate these facilities in countries with lower costs of living, which also translates into lower wages and reduced development costs, without sacrificing the level of professional expertise and final product quality.

Savings in operating expenses come from lower spending on offices, infrastructure, electricity, maintenance and technology purchases, and other costs.

Businesses can also expect savings on other expenses such as office rent, taxes and internet connection costs. By having access to experts at affordable prices and lower development costs, companies can invest more in their projects and create high-quality products for less money, giving them a greater competitive advantage in the market.

Access to global talent

Certain regions, such as Latin America, Eastern Europe and Asia, have quickly become known as offshoring and outsourcing hubs, attracting even more talent and creating huge talent pools of qualified IT professionals. By establishing offshore development centers in these countries, companies have direct access to these trained experts.

Business leaders can build offshore software development teams with powerful skills, capable of working with the latest technologies and adapting to constantly evolving technological demands.

Instead of creating their own offshore development centers, some companies prefer to establish partnerships with pre-existing ODCs. In this case, the partner provides qualified professionals with the skills, knowledge, talents and business processes necessary for the project in question. They ensure that the offshore team follows international standards and has the ability to produce quality work.

Business Continuity

Business continuity refers to how ready an offshore development center is to maintain critical functions after any type of disruption, such as security breaches. As each member of the offshore team, regardless of department, is an extension of the in-house team, they are ready to establish and follow any risk management protocols in agreement with the parent company.

If the parent company faces a business disruption or setback, it can delegate important business tasks to the offshore development center. Due to their extensive hours of work coverage due to time zone differences, offshore team members can ensure continuous project development.

Setting Up an Offshore Development Center

Setting up an offshore development center requires some upfront work, but the results are often worth the investment.

1. Defining your needs and goals

Before beginning the process of establishing an offshore development center, business leaders should take some time to consider their vision, requirements and scope of work for the projects in question.

They must consider what type of work will be performed at the offshore company, which location is best, how big the offshore company should be, and the skills needed for team members. Other important questions to be addressed at this stage include:

• The issues that the offshore development center would solve
• The available budget
• The level of control required
• The type of entity management to choose
• Expected results

Well-defined needs and objectives help business leaders better understand which offshore development center model to choose and determine the right resources to allocate to the project.

2. Conducting a Feasibility Study

Feasibility studies evaluate the practicality of a project by evaluating all factors critical to its success. They determine the project's strengths and weaknesses, potential opportunities and threats, required resources, and prospects for success.

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 such as financial implications, talent availability, legal considerations and potential risks. Conducting a feasibility study before establishing an offshore development center can help identify and prevent any type of project constraints, corporate and external.

3. Choosing a location

When choosing a location to establish offshore software development centers, companies should base their decision on required technical expertise and cultural preferences, while also considering the possibility of unstable geopolitical environments or currency volatility.

The location of your center will have a direct impact on the parent company's expenses, depending on the salaries of foreign employees and rental costs.

In addition to the available talent pool and affordable salaries, consider regions that offer low living costs, affordable technology education, high-speed internet connection, and experts with intermediate to advanced levels of English proficiency.

4. Legal and Compliance Issues

Each country or region has its own set of laws and regulations, including labor laws, tax regulations and data privacy rules, that companies must understand before establishing an offshore development center. This will avoid any legal issues or additional expenses.

Companies often need the help of local lawyers or agencies to align with local laws and gain a better understanding of taxes, labor laws, FDI regulations, import and export policies, wage inflation, attrition and the country's overall legal landscape. . Custom legal software development can be particularly valuable here, aiding compliance and risk management.

5. Forming a company or partnership with an established ODC

To establish a dedicated offshore development center on their own, companies must follow certain steps, including choosing a location, hiring legal advisors to handle administrative matters, and registering the offshore company as a legal entity.

Partnering with an offshore supplier allows for better and faster recruitment, avoiding administrative and management expenses, ensuring better flexibility and scalability and mitigating legal and security 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 supplier. They should start by evaluating candidates’ work culture, background, references, and relevant experience. It is important to investigate the supplier's portfolio, previous projects and reviews from previous customers.

Before partnering with an established ODC, companies need to look for a good balance between quality and cost, assured technical expertise, comprehensive experience in setting up R&D departments, company size and the supplier's market reputation.

Initial communication – when the business leader first explains to the supplier their objectives, product ideas and expected results – is also a great way to determine whether both parties are on the same page and assess whether there are any communication barriers.

6. Configuring Infrastructure

In any scenario – whether or not the company chooses to outsource operations – it is critical to establish a reliable and secure infrastructure to ensure that 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 equip office space; discover 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 companies delegate these tasks to a reliable ODC partner. Much of the burden is alleviated in an outsourcing scenario.

7. Building the remote team

The staffing process for the offshore development center varies depending on whether the company builds the facility itself or works with a vendor.

If a company creates an ODC from scratch, it will need a recruiting team responsible for creating descriptive and attractive job descriptions for all open 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 supplier will promptly provide suitable candidate profiles.

In both situations, it is important to analyze the specialists’ skills, qualifications and educational background. Recruiters should ask questions that allow them to assess candidates' interpersonal and technical skills, assess whether they align with company culture, and determine whether there are 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 must understand what their role is and who they should communicate with and approach when problems 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 quickly as possible. Establishing collaboration tools should also be a priority. Team collaboration tools like Asana and Trello can contribute to team productivity and organization.

They help prepare each teammate for their daily tasks, dictate roles in the project, and determine which solution is best for each situation. Carrying out offshore training is essential for team integration, resolving intercultural issues and ensuring that all specialists meet the company's standards and objectives.

9. Establishment of communication channels and procedures

Working effectively with an offshore software team requires establishing communication channels and procedures. Good communication tools allow for quick problem resolution 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 learning how to manage communication challenges. Effective communication is critical when it comes to the success of offshore development services. Problems can lead to delays, project failures, and misunderstandings.

They must 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 track information.

Companies should also make use of project management tools like Jira, Trello, and Asana to facilitate communication and collaboration between team members, as well as task management and tracking.

10. Monitoring and Adjustment

It is sometimes a challenge to ensure consistent quality across all projects when working with an offshore development center. It is essential to continually monitor and review ODC performance, tracking key performance indicators, establishing feedback loops, and making necessary adjustments to accommodate positive changes.

There are many ways to monitor the performance of an offshore development center. Business leaders can monitor individual performance metrics like productivity rates and bug fix response times, monitor overall team effectiveness through KPIs like velocity charts and burndown reports, and even conduct periodic reviews of code to check the quality and functionality of the code.

Offshore Software Development Center Challenges

While offshore development centers are incredibly beneficial for companies, they present their own sets of challenges for companies and their leaders to overcome.

1. Communication and cultural differences

When establishing an offshore development center, both the parent team and the offshore company will likely experience cultural and communication differences depending on the country where the company chooses to establish its ODC.

Companies must promote effective communication between both parties. The best way to do this is to establish good communication channels and procedures and hire competent project managers who can manage remote teams and bridge the gap between stakeholders, leaders and technical teams.

Companies also often encounter cultural differences when working with people from different countries.

A good way to overcome this situation is to establish and operate an offshore development center in a region with a similar culture. Cultural differences translate into language barriers and differences in work culture, attitudes towards communication and conflict management. While they may not seem like the most crucial challenge, they affect the way companies make business decisions.

Business leaders help avoid or mitigate these barriers by interacting personally with the offshore team and discussing their visions. Other methods include holding workshops, team-building activities, and encouraging interactions outside of work.

2. Quality control

It can be difficult to control the development process and its quality when working with remote teams. It is imperative that companies establish comprehensive quality control processes, as well as invest in training and conduct regular audits and inspections. Companies must also establish their own set of quality assurance tests and rigorous standards for each project to help with quality control.

Conclusion

Today's competitive market means companies must adapt quickly to accelerate growth. To keep up with current demands and maintain a competitive advantage, many companies establish their own offshore development center. They help companies scale and innovate by providing access to affordable global talent, enabling business leaders to reduce global costs and create fewer administrative hassles.

ODCs benefit companies of all sizes and sectors. They are a great option for companies that need assistance in creating new products from scratch or expanding an existing one, creating an R&D center, or even freeing up their in-house software developers so they can focus on main 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 presents some challenges due to working with remote teams from different countries. Companies often have to deal with cultural and communication differences and quality control issues when managing offshore development teams.

Fortunately, there are several ways to solve these problems and ensure that companies can make the most of this working model, from defining the needs and objectives 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. This frees the parent company from the responsibility of taking care of administrative tasks, recruiting and hiring the right candidates for its offshore software development team, and conducting external research to better understand the country's local policies and laws.

Common questions

What is an offshore development center?

An offshore development center is a company office located in a different country that still operates under the same brand. It consists of a multifunctional team, management and infrastructure necessary to take development to completion.

Why do companies create a dedicated offshore development center?

Companies establish dedicated offshore development centers so they can delegate software development projects and focus on core business responsibilities. They have access to a global talent pool that is much more affordable than local talent, and they also save money on office space and infrastructure by establishing their offices in countries with lower costs of living.

Having talented offshore teams dedicated to their projects allows companies to accelerate development and reduce 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 advantage in the market.

What are the advantages and disadvantages of the offshore development center model?

Key advantages of the offshore development center model include cost efficiency, access to global talent, and business continuity. This business model also has some disadvantages, including dealing with cultural and communication differences and quality control issues.