Software Development Outsourcing vs ODC Setup - The Pros and Cons

Setting up an ODC and outsourcing your software development are both winning strategies when they are accurately tailored to the business goal. This article compares both of the business models, dwelling on their pros and cons.

Setting up an Offshore Development Center vs Software Development Outsourcing - What’s the Difference

Creating the highest-end software at the lowest possible costs along with accessing top tech talents are the main reasons why both mature companies and startups consider software development outsourcing. Despite the popularity and feasibility of this business model, there are still some misunderstandings when it comes to the opportunities remote software development opens up.

That’s why in this article, we suggest drawing a clear line between setting up an offshore development center (ODC) and outsourcing the process of software development.

What Is Software Development Outsourcing

The definition of software development outsourcing is pretty simple. This business model means hiring for the service instead of hiring people. From the practical standpoint, it means collaborating with a development company that already has all the necessary human and technical resources, and using them during your project creation, following the model of “software development as a service”.

What Is an Offshore Development Center

An offshore development center, in turn, is a separate business unit that can be created in the country that offers a good match of tech talent pool and the reasonable cost to hire them, plus has a welcoming business environment. Usually, the companies decide to run an ODC with the goal of expanding an IT department, getting started with digital transformation, or running several tech projects one by one.

The Main Goals of Software Development Outsourcing and Running an ODC

Despite the essential difference between software development outsourcing and running an offshore development center, the goals of the companies choosing between these strategies are greatly overlapping.

1. Reduce development costs. Both software development outsourcing and setting up an offshore development center are cost-effective strategies in their own way. While an ODC allows for decreasing the development cost of large-scale and ongoing projects, software development outsourcing is financially winning for startups. 
2. Access top talents. Depending on the destination you choose to either outsource to or set up an ODC in, you can access top-skilled professionals and bridge the talent gap. 
3. Become more agile and flexible. What’s more, both of the strategies add great flexibility to your project development. A dedicated team hired according to the software development outsourcing and the team working in your offshore development center can easily be expanded or shortened in the case the project course changes.

Despite common goals, setting up an ODC and outsourcing software development are still different strategies. Let’s find out when each of them makes the most sense, becoming value-adding, depending on the business goal.

When Software Development Outsourcing Makes the Most Sense

• You aren’t ready to hire an in-house tech team. In this case, outsourcing your software development is both a time-saving and cost-effective tactic that allows for hiring a ready-made team, running the project creation remotely, and paying for the services according to the “pay as you go” model. 
• Your company lacks technical expertise or there are no necessary talents in your location. Highly innovative projects often face an in-house or local expertise shortage. In this case, getting in touch with an experienced development vendor is an option to bridge the talent gap and access highly specific knowledge, skills, and practices. 
• You have to focus on core business processes. This is one of the main benefits and use-cases of software development outsourcing. Assigning the non-core tasks to the third-party vendor allows you to focus on your core processes and competencies. 
• You need white-label development services. The companies operating in the B2B segment also often need software development support as an extra service to the ones they are providing their customers with. For example, marketing agencies often use white-label development to create web and mobile apps for their customers.

When Running an Offshore Development Center Makes the Most Sense

• Your company gets started with digital transformation. Transforming your company digitally means creating value-adding software solutions one by one, completely changing the business processes along with the corporate culture. In this case, setting up an ODC is a smart strategy since digital transformation is an ongoing process requiring day-after-day integrations. 
• You plan to develop a huge and scalable project. An offshore development center works like a managed branch office so setting it up can be a winning tactic to develop, deploy and scale a large project, involving tech talents with different skill sets. 
• You want to expand your business presence. Some of the companies eager to expand their business presence, get started by setting up an ODC in a chosen country. Next, they turn their ODC into a full-fledged branch office, developing an employee brand and attracting top local talents to their teams.

So, after matching the feasibility of this or that development strategy with the current necessities of your business, let’s proceed with a detailed overview of the pros and cons of setting up an ODC and outsourcing your software development.

The Pros and Cons of Software Development Outsourcing

Below are the main advantages and risks of software development outsourcing.

Pros

• Cost savings. Software development outsourcing allows for saving up to 60% of the development budget, depending on the chosen destination.
• Instant start. Outsourcing the development process allows for an instant start by skipping the stage of gathering a team from scratch and shortening the time to market.
• Flexible engagement models. There are three types of outsourcing contracts, each of which can be perfectly tailored to the use case, meeting the needs of both small and large projects with different goals and scalability plans. 

Cons

• Lack of control. Outsourced projects are sometimes challenging to control, especially in the case of outsourcing them offshore, to a country with a significantly different time zone. To leverage this risk, choose the destination smartly, plus agree on the project development control practices in advance.
• Miscommunication issues. Staying on the same page with the development vendor is essential for seamless project creation, and vice versa. That’s why you have to choose the tech company you have a common vision with.
• The risk of cultural mismatch. Outsourcing your project offshore increases the risk of a mentality gap. Be sure to choose the destination with overlapping business ethics and values.

The Pros and Cons of Running an Offshore Development Center

Establishing an offshore development center also comes with its pros and cons, compared below.

Pros

• Cost-effectiveness. Setting up an offshore development center is a cost-effective strategy in the long run since it allows for saving operational costs while running a full-fledged business unit.
• Running multiple processes from a single place. An ODC is also a good business model for the companies that have to run several processes at once, for example, PR, marketing, and design, in addition to software development.
• Flexibility and agility. Nevertheless, an offshore development center is still a flexible business unit if you have created it with the help of a tech vendor. In such a case, your strategic partner can help you with expanding or shortening your team members if the project course changes.

Cons

• Remote management. While outsourced projects may be difficult to control, an offshore development center can be challenging to manage remotely. That’s why assigning a Project Manager from the staff of the main business unit makes sense. Such a tactic will help keep the company and its ODC better connected and aligned.  
• The risk of cultural mismatch. Such a risk is relevant for both software development outsourcing and running an ODC. And the tip to avoid it is still the same - choose the destination wisely, comparing and validating several options.
• Security risks. Keeping sensitive information secured can also be challenging when running your development center offshore. That’s why be sure to follow the latest data protection practices, obliging your team members to follow them as well.

Top Cost-Effective Locations for an Offshore Development Center

Setting up an offshore development center is a winning strategy for the long run. However, to reveal all its benefits, you have to choose the destination wisely, taking into account the following factors.

• The talent pool available.
• The level of tech specialists' education. 
• The level of English proficiency. 
• The average software developer salary.
• Legal specifics of the country.
• Economical, political, and business environment. 

There are several countries that offer a good match of the factors described above so you can consider them as promising destinations for setting up your offshore development. For example, Russia recently was one of them as well, however, because of the economic sanctions it was affected by, it has already lost its attractiveness as a tech hub. Ukraine, in turn, can still be a choice for software development outsourcing.

However, if you are looking for a less popular but still popular destination to set up your ODC in, pay closer attention to Azerbaijan. In our recent article, we have already shared core reasons to create an offshore development center in this country. 

Summarizing them in brief, Azerbaijan offers a good match of top-skilled developers with international experience, good command of English, and high engineering education. The cost for their services is also pretty reasonable, plus Azerbaijan welcomes innovations by creating a favorable investment environment. This is a country with clear economic growth prospects and political stability, so having your ODC in it is a value-adding strategy.

Conclusion

Both outsourcing your software development and setting up an offshore development center are equally winning strategies when they are tailored to the current business goals and project’s specifics. SpaceBus would be glad to help you with setting up an ODC in Azerbaijan, while staying compliant with legal requirements, attracting top talents to your project, and creating cutting-edge software!