Offshore Development Center - What Is It & How to Build?

As software development demand increases worldwide, businesses always look for innovative ways to get ahead of the curve and remain competitive. Establishing an Offshore Development Center (ODC) is one strategy that has received a lot of attention over the last few years.

Also, the option of ODC is worth considering if a company does not have the necessary funds to carry out technology projects or wants to save costs. 

In this post, you will explore the meaning behind the Offshore Development Center, its benefits, risks, challenges, and possibilities for helping businesses leverage their global potential in this post.

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What Is An Offshore Development Center?

An Offshore Development Center (ODC) is a separate facility set up by a firm in another country to perform specific software development and IT-related projects. These centers are part of a parent company that allows businesses to benefit from global talent pools, cost advantages, and access to new markets.

To easily understand, an ODC is known as a development company that supplies you the software development services but is located in another country. This type of company is considered a subsidiary of your main company. In particular, as regards the country in which ODC is located, it has a much lower level of living standards than its holding company’s location.

The Offshore Development Center offers concrete solutions to help firms overcome these problems, assuming that businesses are in a shortage of workers or need assurance for their technology projects. Some of the most well-known offshore development services are QA tests, software development engineers, testers, UI/UX designers, HR managers, etc.

In addition, the Offshore Development Center tends to optimize all business activities, particularly the equipment and infrastructure, which helps businesses cut down on their initial investment costs for offices and facilities. ODC could be an option when companies lack the necessary resources for their technology projects or wish to save costs.

Differentiating Offshore Development Center From Outsourcing

Generally, the Offshore Development Center and Outsourcing both share the same interest in accessing a large skilled talent pool at significantly lower costs for development services. This enables firms to save money and increase productivity through recruitment, optimization of accounting, human resources, or office budgets.

However, the ODC is slightly different from software outsourcing. You can look at the following detailed information:

	Offshore Development Center	Outsourcing
Main Purpose	Increase the workforce but utilizing the cost difference between the two countries	Increase productivity and tackling other key tasks, but saving cost is not an essential cause
Location	Provide services and products, but it is located in other countries	Offer services and products from a third-party company, no matter the geographical location
Operations	Include all types of experts you might require, such as developers, quality assurance professionals, project managers, product managers, DevOps engineers, designers, copywriters and UX/UI specialists, marketing specialists, etc.	Assign a project to a third party that has been completed internally. In this case, two different companies are involved in a project, with one responsible for the internal activities of the other company, regardless of their location.

6 Offshore Development Center Models

The Offshore Development Center model is a strategic business approach that requires establishing an offshore facility to outsource software development, IT services, or other technical functions. 

This model enables businesses to exploit the advantages of global talent, cost optimization, and scale while maintaining control and oversight of outsourced activities. 

In more detail, let’s look at the ODC model as followings:

Contractor model

This popular model is particularly suited to the needs of small businesses. In this model, requests or specific requirements for the Offshore Development Center will be sent by the main office to the contracting authority overseas, which will select the team based on them. 

A broad range of management and technique activities, such as analysis and system development, software updates and development, programming code, etc. Most enterprises also use this model to attract talent, particularly IT experts.

Customer model

Large companies frequently adopt this model, as they can take on a wide range of tasks. In this model, the selection of teams is also based on the customers or main office requirements. In contrast to the choice of the Contractor OCD Model, however, clients will be responsible for much more work in this case.

It can be as diverse as product research, analysis, and management of teams, while the OCD team will primarily concentrate on coding. In other words, the way this model works is equivalent to the structure of subsidiaries and major organizations.

Software ODC Trust

This model is appropriate for clients requesting top-notch security levels when designing their models. To put it another way, it’s for those who demand the highest level of security, which is suitable for those whose software is one of a kind and therefore requires strict confidentiality.

Software ODC Classic

The most common software development method used by the ODC. The model entails a dedicated team, which has the required technical skills to carry out the project in accordance with its needs, under the supervision of the Project Manager. This model is useful for projects with a wide variety of tasks, such as upgrading and expanding old software, its support, moving it to another platform, or programming new code.

Software ODC Branded

The best choice for companies and corporations who want to be at the forefront of this process, engage in it as well as control its development. This is your choice if you wish to participate in or manage the entire software development process.

ODC Full Form

It is also known as a private ODC. This model allows for customer development centers to be set up in other countries. The selection of a team shall consider the client’s need for planning, research, analysis, design, and management tasks in close cooperation with its headquarters. 

8 Advantages of Offshore Development Center

There are numerous advantages for businesses in Offshore Development Centers. The key advantages of setting up an ODC are listed below:

• Optimization of costs: Offshore Development Center is often deployed in countries with low living costs. By reducing their operational costs between countries and labor while increasing sales or shifting the main focus to other factors, they may be able to use cost differences.
• Access to a talent pool: This allows local companies to access specialized knowledge, experience, and expertise that they may not be able to acquire locally. Enterprises can help stimulate innovation, speed up the development cycles, and keep pace with competition by widening their talent reach.
• Expand the market to a foreign country: This authorizes expanding the sales volumes, reputations, and understanding of customer needs better by being present in other markets. Placing in big local companies allows the ODC to have a physical presence in the target market & reduce logistics costs.
• Control the work effectively: You may be able to communicate directly with these ODCs frequently under the principles and terms of the contract and quickly control the status of projects. If something goes wrong, you can report it to them so they can make more flexible arrangements for your needs. 
• Round-the-clock productivity: The Offshore Development Center does not get involved in this situation of late delivery because they always work within the project time limits set by the central office. This may shorten the overall project implementation time provided.
• Product localization: ODC is a good choice if you wish to penetrate into the global market since it not only facilitates your own company’s connection with that particular country but also assists the localization of products. Moreover, each project will have its own allocation of resources. 
• Easy scalability: ODCs allow companies to grow or decrease their capacity according to project requirements while maintaining the budget. This flexibility allows businesses to adapt to market requirements and handle project fluctuations, which does not require massive hiring or downsizing efforts.
• Cheaper facilities: Not only are firms benefiting from reputation and sales, but also, in a much cheaper country, they will probably save office rentals, maintenance costs, internet service charges, etc. by creating an Offshore Development Center at the heart of the economy.

7 Risks & Challenges of Having An Offshore Development Center 

While the benefits from Offshore Development Centers are substantial, keeping a close eye on the potential risks and challenges of setting up or managing an Offshore Development Center is important. 

Key risks and challenges to be considered are as follows: 

• Wrong choice of location: Check your ODCs site if you are trying to reduce costs and increase sales. You’re better off not going to small cities with too few experts available for your particular area of expertise and less potential.
• Cultural differences: The cultural difference in how people work may lead to different ways of working, then may cause conflicts during the working process. Other differences include language barriers, working habits, attitudes toward communication, conflict management, and communication channels. 
• Security threats: There is a risk of data leaks and raids on law enforcement officers and criminal groups when you have a distant office with no proper security methods and procedures. The government may ask you to conduct a security check on confidential information in certain situations where their country is at risk.
• Team concerns: There’s a significant difference between hiring an in-house team and hiring from abroad. The remote team needs to be encouraged and treated with respect because they may feel they are being placed in a second team. If you can, or should invite them to the main office and make a better acquaintance with each other, occasionally visit them in their country.
• Time zones: Having an ODC is one of the most critical challenges to overcome. If a client has requested that communication be more accessible, most companies will help schedule and advise developers.
• Legal conflict: One factor that businesses have to pay particular attention to is open policies in favor of foreign companies. It is tough for businesses looking to expand abroad to set up business in certain countries because they have laws that prevent foreign firms from establishing operations within their territories.
• Communication and management: It is a big loss when online communication occurs because you don’t see someone’s face or body language. Therefore, you should be aware of giving clear and instructive communication to make amends for the gestures. It is essential to unify the various means of communication and working styles. 

How To Build The Ideal Offshore Development Center

Please refer to 8 steps of the guidance below if you’re having trouble setting up an Offshore Development Center which can bring value, innovation, and success to your organization:

Step 1 – Clarify Your Business Vision And Requirements

Identify the functions and projects to be outsourced, the skills you intend to bring on board, and expectations for results. Identify the objectives you wish to achieve, such as cost reduction, access to specialized skills, or expanding your global presence. 

This will help you to determine the size, resources, and infrastructure needed for your ODC. You can take a look at the following considerations for reference:

• Cost reduction: Evaluate development costs and identify outsourcing opportunities for cost reduction.
• Access to specialized knowledge: Identify specialized knowledge needed from Offshore Development Center to enhance current talents.
• Global presence: Consider the local development team’s cultural understanding and consumer preferences for benefits.
• Scalability: Determine resources and scalability requirements for offshore centers.

Step 2 – Select The Appropriate Offshoring Location

It is not only a country that your foreign team will be operating in but even cities and regions. Factors such as talent availability, cost advantages, working environment, infrastructure, and cultural compatibility should be taken into account when selecting a location outside of the country. Look at the places with established technology hubs, an excellent talent pool, and a favorable business environment.

The following factors should be taken into account while selecting the ideal location for the ODC:

• Talent pool: Consider the location’s access to qualified professionals. To ensure a talent pool that meets your needs, research educational institutions, IT hotspots, and the business environment.
• Language ability: Evaluate the region’s language proficiency levels because good communication is essential for productive collaboration with your offshore workforce.
• Cultural compatibility: Consider cultural compatibility to improve teamwork and reduce potential difficulties.
• Political and legal stability: Assess the offshore location’s political and legal environment. Ensure the country has a solid legal system that protects intellectual property rights, a stable business environment, and supportive policies.
• Infrastructure: Evaluate whether there is any reliable infrastructure, such as telecommunications, electrical power, and transportation networks.
• Cost of operations: Consider the whole cost of operating in the prospective location, considering labor costs, taxes, real estate costs, and administrative overheads.

Step 3 – Be Aware Of The Upcoming Risks And Challenges

Identify the problems you will face when working with an offshore team of different nationalities and ethnicities. Then, those problems can be resolved as soon as possible, which may limit the unexpected damages. 

You should handle such issues by creating opportunities for communication, careful partner selection, demanding quality control processes, and implementing security measures to reduce these difficulties and successfully operate an Offshore Development Center. 

Step 4 – Team Composition And Recruitment

Select a foreign software team based on the project requirements, technical expertise, years of experience, and soft skills. For your ideal ODC team, define the roles and skills you need. 

Check whether you’re going to transfer existing employees or hire locally. To build a team with the necessary technical expertise and cultural fit, engage local recruitment agencies, use online job portals, and conduct interviews.

To evaluate the abilities and talents of the professionals:

• As many inquiries as you like
• Tell them what it is they do.
• Don’t forget to hold direct meetings in the main office to welcome new staff.

Step 5 – Prepare For The Legal Documents

Establishing an Offshore Development Center needs the signature of numerous contracts; thus, local legal consultants are essential. Layers will ensure you get the most beneficial contract conditions, and the first document will be a lease agreement. 

You or your team have to have great bargaining skills and be well-versed in national law in order to prevail in these processes. So you need to use legal advisors’ help in both countries to draw up legal documents.

Additionally, if you wish to protect the details of your project, you must create a list of your policies and an NDA. This action will aid in the protection of your company. The offshore labor will be fully aware of what is required of them and the consequences of breaking the regulations.

Step 6 – Setup Of The Infrastructure And Technology

Equip your Offshore Development Center with equipment, software, or communication tools. Configure a secure network, VPN connections, project management tools, versions control systems, and collaboration platforms. Ensure the Internet connection and adequate backup system are available for your ODC. 

In particular, you can refer to the following suggestions to prepare for the setup:

• Sufficient Internet connectivity: To facilitate smooth communication and data transfer of your offshore teams from one coast to the other, ensure adequate Internet connections at all times.
• Hardware and Software: Depending on team needs, you can purchase the required hardware, such as computers, servers, or peripherals. To facilitate the efficient development process, acquire licensed software and development tools.
• IT Infrastructure: Ensure a robust information technology infrastructure, such as network security, firewalls, data backup systems, and disaster recovery measures. A key issue to consider is data protection and ensuring continuity of operations.
• Security measures: To safeguard sensitive data and intellectual property, security protocols shall be put in place. Physical security measures such as controls on access, data encryption, and regular audits may be part of this.
• Scalability and redundancy: You should plan for future growth and make sure the infrastructure can expand along with the Offshore Development Center’s growth.

Step 7 – Knowledge Transfer and Training

Team training and mentoring are essential to ensure that your inbound and outbound teams have a seamless interaction. You have to define the timeframes that must be followed for this team to function and deliver projects on time.  

Furthermore, it is necessary to produce a complete set of documents, hold training sessions and organize regularly scheduled meetings to promote cooperation and knowledge sharing. This will ensure that the ODC team knows the company’s objectives, processes, and project requirements.

Step 8: Regularly Check The Progress And Track The Result

To ensure that projects align with the parent company’s objectives, establish a series of scrum meetings to update project progress, feedback, changes, and bottlenecks periodically: Regularly monitor progress, carry out a review, and publish transparent reports.

Additionally, try to establish regular, transparent communication with your ODC. An effective and durable relationship will arise from this. Regular meetings will keep you updated on product development status, give you a chance to discuss important matters and maintain efficient and transparent communication.

Besides, there are 3 best practices you be aware of when you are assigned to an Offshore Development Center.

• Thorough research and planning: Based on talent availability, favorable business regulations, and infrastructures, carry out comprehensive research to find the best possible offshore location.
• Clear communication and documentation: Clearly define expectations, goals, and processes by establishing a transparent dialogue with the parent company and an ODC. Maintaining consistency and reducing misunderstandings can be achieved by documenting processes and procedures.
• Solid relationships: Organize team-building activities, regular visits, and virtual interactions to create a collaborative and cohesive working environment. That helps generate a feeling of unity,

Conclusion

The Offshore Development Center is a company that provides software development services, but it’s located in another country. For organizations, creating an OD will provide them with a powerful means to realize their full potential.

The ODCs are an attractive option for companies seeking to improve their competitiveness and drive growth, with a range of benefits ranging from cost savings to access to skilled talent.

Organizations can maximize the benefit of their ODC partnership by identifying and addressing potential challenges, considering key elements such as location, cultural fit, communication, and governance. In a globalized economy, where businesses must thrive and achieve sustained success, companies need to embrace ocean development as a strategy option.