Setting Up an Offshore Development Center - Benefits, Tactics, and Costs

Creating an offshore development center (ODC) is one of the advanced software development outsourcing strategies. Find out how to do it right, avoiding risks, mistakes, and pitfalls.

What Is an Offshore Development Center and How to Set It Up

The opportunities software development outsourcing can promise go beyond hiring a remote and project-dedicated team. For large-scale projects, establishing their own offshore development center promises more business value at lower costs, allowing them to stay agile and flexible with their development processes. Let’s research the opportunities, benefits, and risks of establishing an offshore development center, along with the best practices to do it right.

An Offshore Development Center (ODC) Definition

An offshore development center or ODC is a separate business unit that, as the name suggests, is located offshore and focused on development tasks only. To explain it even simpler, think of it as your own IT department which is separated from the head office and moved to another country so that it can fully concentrate on tech tasks, and you, as a business owner, pay less for this department maintenance. 

The only difference is that an ODC is usually set up from scratch, in response to the growing and specific business needs, and when the business environment of the remote country is more beneficial for the project development compared to the homeland.

When Establishing an ODC Promises Most Business Value?

Below are the business needs and conditions when establishing an offshore development center makes the most sense in terms of cost-saving opportunities, flexibility, and accessing the necessary tech talents.

• You have a large and ongoing project with great scalability potential. Establishing an ODC is a reasonable business strategy for large projects only. By following it, you can fully dedicate the project development to a remote team while staying focused on your core business tasks. 
• You have several projects that have to be developed in parallel. In this case, gathering several tech teams under the roof of a single offshore development center makes the most sense, allowing you to hire and retain the necessary specialists at a lower cost compared to your home country. 
• You are on the way to digital transformation. Transforming the company digitally means both embracing cutting-edge technologies and switching to the new paradigm of thinking. If your company follows the way of these step-by-step changes by creating and introducing new software into your business processes, you are also welcome to think about creating an offshore development center.
• You want to establish a business presence in a new country. Creating an offshore development center is a wise decision if you want to expand your business presence. Most companies that follow this strategy sooner or later transform their ODC into full-fledged business units with a well-established employee brand.

The Reasons Why The Companies Decide to Establish an ODC

What is the business value of having your development center offshore? Most of the benefits of running an ODC overlap with the ones of software development outsourcing, so let’s take a brief look. 

• Save operational costs. The core idea behind the software development outsourcing and establishing an offshore center as one of its strategies is the opportunity to significantly cut the operational costs because of the significant salary gap between the outsourcing destination and homeland country. What’s more, establishing an ODC with the help of a vendor allows you to significantly save on organizational and HR-related costs. 
• Bridge the talent gap. Accessing specific talents that your homeland country may lack or have at an unreasonably high cost is another benefit of establishing an offshore development center. However, from the perspective of this benefit, you have to be very careful when choosing the location, making sure that there is an actual talent pool of the necessary specialists. 
• Get different tech services at once. In addition to the technical part of the development process, large projects also need additional services, for example, design, marketing, and PR. Creating an ODC allows for gathering the necessary talents under a single roof, ensuring more seamless collaborating and effective communication between all the team members. 
• Achieve better flexibility. When establishing an ODC with the help of a dedicated vendor, you get better opportunities of staying flexible with your team. In the case the development course changes, the vendor will quickly be able to either hire additional talents or redirect tech talents to another project if you no longer need them.

How to Establish an ODC - Two Tactics to Choose From

While creating an offshore development center is usually considered as one of the software development outsourcing strategies, there are still two ways to do it. You can either do it on your own or hire a tech vendor to help you. Let’s review the pros and cons of both tactics.

Creating an ODC On Your Own

Following this strategy, all the organizational headaches and expenses are exceptionally yours. Below are the positive and negative features of this tactic. 

Pros

• You can fully control all the processes - getting started with choosing the location and office and ending with interviewing your team members.
• You can learn the specifics of the country you establish a center in as deeply as possible.

Cons

• You have to spend a lot of time since establishing an ODC on your own is equivalent to creating a new business unit in a foreign country in terms of time and effort spent.
• You are about to face great costs for legal consulting, hiring HR managers, recruiting a team, paying taxes, staying compliant, and so on.

Hiring a Tech Vendor

Hiring a strategic partner to help you set up an offshore development center is one more tactic you can follow. It also comes with its pros and cons.

Pros

• You can outsource all the processes related to setting up an ODC - from renting an office to gathering a development team
• The development vendor already has a deep understanding of legal specifics and will help you stay compliant with them
• There is an opportunity to hire a ready-made team which comes as a pretty flexible unit
• You can achieve significant savings on the HR-related costs
• You are welcome to interview your future team on your own
• You can get started gradually by renting a small office and hiring several specialists while the development vendor will support your growth and quickly adjust to your growing business needs.

Cons

• You have to choose a vendor very carefully, making sure the company has both the experience in building solutions for your niche and establishing offshore development centers in your chosen country
• There is a risk of miscommunication
• Such a strategy can cost a fortune when mistakenly tailored to the project specifics.

How Does an Offshore Development Center Work According to the Outsourcing Business Model?

Taking into account the advantages of setting up an ODC with the help of a tech vendor, this strategy makes the most sense for the businesses which need to get started quickly, follow the best practices for an ODC establishment, and access top tech talents in a specific country.  After making such a decision, you will have to choose between three engagement models typical for software development outsourcing and relevant for establishing an offshore development center as well.

• Fixed price. A fixed-price contract, as the name suggests, allows you to pay the vendor a certain amount discussed in advance. This sum will cover all the organizational and operational costs, plus the cost to hire the necessary team, for a year, for example. Such a tactic is suitable for large, still predictable projects. 
• Time and material. This type of contract suggests paying as you go. It is a good choice for large, still flexible projects that will be developed for a dynamic market environment. 
• Dedicated development team. As a rule, the companies decided to establish an offshore development center, power it with several dedicated teams to run several projects at once. This is the most expensive strategy, however, it pays off when you need to launch your software as quickly as possible, get the full-cycle servicing, and have ready-made still flexible teams, fully dedicated to each of your projects.

How to Establish an Offshore Development Center Step by Step?

Below is a step-by-step action plan to help you set up a development center offshore.

• Choose a location. Choosing a location is the most important pillar of the whole ODC creation strategy. When making your choice, pay attention to the talent pool availability, especially if you have to solve pretty specific tech tasks. Also, pay attention to the education level of the developers, their English fluency level, and experience in creating the projects for your niche. The latter is especially important to ensure the seamless and mistakes-free development process. Next, review the developers’ salary and match it with your budget expectations. 

As for the destinations to choose from, there are several popular options:

1. Eastern Europe. This is a top software development outsourcing destination, and most countries have investment-friendly legal regulations, along with a great talent pool. However, the price for the development services can be high, especially if you need a large or several teams.
2. The Far East. India is one of the most popular countries to establish an ODC in. There are a lot of skilled developers which you can hire for a pretty reasonable cost, however, there is a significant cultural mismatch that is likely to affect both communication and the development process.
3. Less popular destinations. Despite the popularity of software development outsourcing as a business model, there are still some undiscovered, less popular but no less promising outsourcing destinations. For example, Azerbaijan can be a winning option. This country stands out with the perfect match of price and quality, a good talent pool to choose from, less fierce competition for the top specialists, and the budget-friendly rate to hire them.

• Research and understand local legal regulations. Depending on the country of your choice, you will have to research legal regulations and develop a plan to stay compliant with them. Pay attention to the procedure of business entity establishment, the legal rules for hiring, recruiting, and taxation. As an option, you can hire a legal advisor, however, if you have a tech vendor, they will help you stay compliant with local legal norms. 
• Develop a business plan. Taking into account the specifics of the country, its political, economic, and investment environment, you will have to develop a business plan, highlighting the projects that will be built, their approximate cost, and expected revenue. 
• Run your project development. Supported by your development vendor, you will be better able to solve all the organizational issues and proceed with your project development.

Are There Any Risks in Establishing an Offshore Development Center?

Consider Running an Offshore Development Center in Azerbaijan

Conclusion