Creating an offshore development center (ODC) is an increasingly popular alternative to grow a company’s internal teams and achieve greater software development capacity while ensuring the effective use of limited resources. In this article, we want to define what an ODC is, present the advantages and risks it brings, give insights into how to choose a partner to set up an ODC for you and prepare for establishing an external development center that ensures the highly efficient cooperation.
What is an offshore development center in software development?
An Offshore Development Center (ODC) is an offshore team of talents that offers software development services to a company located in a foreign country. ODC services consist of a team in a foreign country providing software solutions for another company. They operate as a partner, often in cost-effective regions. ODC services range from software development to managerial roles, design, and HR, all geared for efficiency and talent development.
What distinguishes a Nearshore Development Center (NDC), whose principle of operation is practically identical, is that the distance separating the company purchasing development services from their provider is smaller – if you want to learn more about the differences between nearshoring and offshoring and learn about their advantages and disadvantages, click this link.
To reduce the responsibility of the main entity, companies creating ODCs usually provide not only technical specialists, such as developers or testers, but also managerial roles (PM, PO, SM), designers (UX, UI), business analysts, HR, an account manager responsible for the cooperation on the operational level and an account director responsible for the strategic development of the partnership. In addition, the vendor provides their people with all the equipment and infrastructure necessary for them to do their job effectively for the client and to develop their competencies (i.e. internal/external training, funding conference trips, creating competence guilds and so on), which minimizes the costs related to equipment/office and the development of specialists.
Advantages of an Offshore Development Centre
In general, companies decide to establish an offshore development center to boost their development capacity and effectiveness. As we said, software development companies offering to establish an ODC already have the equipment, infrastructure and experienced professionals. Thus, teaming up with such a partner allows ODC projects to not only start much faster compared to building everything from scratch in-house, but also require lower investment. But that’s not the end of the story. Cooperation with offshore software brings additional value, so let’s briefly list the main advantages of establishing an offshore development center, while for those who want to learn about other outsourcing benefits, we prepared a separate text focused on the hidden value of software development outsourcing.
Access to a large pool of IT talents
An ODC is one of those places where you can find highly proficient IT teams with proven competencies, skills and experience. Leading ODC companies usually focus a lot on honing the skills of their employees to make sure they can deliver the best solutions to your target customers. Furthermore, choosing the right location for your ODC will allow you to tap into the local talent pool, which in many cases allows you to increase cost efficiency, speed up the recruitment process and reach talents unavailable in your main location.
Effective control over operations
An ODC follows guidelines from the main office and works closely with your internal specialists and managers. Thus, you will be able to assess and track the ongoing progress of work. If the results won’t meet your expectations, you can renegotiate the terms of your contract and, in the case of gross errors, even demand a project be redone.
Ongoing technical support and…
ODC offers ongoing technical support for the entire project cycle. Throughout the project, offshore companies use their knowledge and previous experiences to carry out their tasks, combining these with the knowledge you provided during the onboarding process and subsequent collaboration – allowing you to take advantage of that cumulated expertise.
…business and technical consultancy
Proven software development companies have access to vast cumulated knowledge and skills, often niche. As a consequence, they can fill your team with the expertise it might be lacking, for only the time necessary to solve a particular challenge or to simply provide another point of view, all in a short period of time.
Read also: The three pillars of scrum
Projects delivered on time
ODC teams deliver projects on time because they operate under optimal conditions and strictly adhere to the project schedule and guidelines set by the client from start to finish. In addition, they collaborate effectively with the in-house team to reduce the overall project duration.
Efficient allocation of talents
The number of talents required varies from project to project. There are times when talents in the main office need to be redeployed to meet the requirements of a particular project; simply put, you may need to either reduce or increase the number of specialists in your internal team. An ODC is like an extended arm that can perform the tasks of the in-house team, effectively helping you scale your IT department while maintaining a high degree of flexibility – allowing you to easily ramp up/ramp down depending on your current needs. Without an ODC, capacity allocation would be much more challenging.
Risks associated with Offshore Development Centre
Although ODCs have become increasingly popular and distinct from other outsourcing models nowadays, business leaders still need to consider the risks of such a model and take steps to mitigate them.
The challenges of remote management
Although technology has advanced to the point where remote work is now our everyday reality, this does not mean that communication issues will not arise. Fostering open communication with remote workers can be difficult. That’s why managers in the main office should be able to present their ideas, expectations and make sure the remote team understands everything while ensuring the possibility for the external team members to discuss any concerns they might have.
Cultural differences can harm productivity. For example, an Indian or Chinese developer used to a hierarchical work culture may not feel comfortable in an environment that’s known for freedom and informality, like in a typical American workplace. Differences in cultural and business values can lower morale and reduce productivity, so when choosing where to establish an offshore development center, these elements should be analyzed. One should either select a location similar in terms of culture or prepare strategies to address potential challenges.
Some countries prohibit foreign companies from setting up in their territory, which poses a major challenge when registering new legal entities. It is therefore important for decision-makers to research potential offshore countries and verify their legal regulations, preferably even before creating a shortlist of potential vendors.
Offshore Development Centre checklist
As this article is dedicated to taking a holistic look at ODCs, we will only focus on the most important elements that need to be verified during the selection process of a partner when setting up an offshore development center. However, if you want to learn more about the individual elements and verification methods, we cover these topics in separate posts on our blog. I.e., starting with the best locations, verifying security and business continuity aspects, up to vendors benchmarking, and establishing cooperation completely remote.
Skills and quality
Right from the start, it is important to have a clear understanding of which country offers the best services in terms of competencies, and within that location look for a specific company that can deliver your desired competencies and provide high-quality services. This will allow you to effectively invest your budget and thus achieve the expected benefits of setting up an ODC.
Company profile and experience
What is the best way to find out whether a partner-to-be will match your needs? Look at their history and ask their customers. Reviews and interviews with customers are invaluable. This will give you insights about the company, its operations and performance in “real life”, not just during sales meetings.
It is advisable to work with ODC companies with years of experience. They are more familiar with the use and management of relevant technologies in ODC projects. They also tend to be up to date with trends in the technology world. More importantly, companies with a long history are likely to be more reliable when it comes to maintaining the security and confidentiality of projects and information. You can also check how long their earlier collaborations lasted/are lasting. If their clients have chosen to use their services on a long-term basis, you can rest assured that they will be able to deliver what they promise.
Apart from past cooperation, inquire about their attrition rate and means of talent retention. Onboarded developers, familiar with all the intricacies of your project, are much more effective and create a solid foundation for further scaling.
The quality of information flow is key to the effectiveness of an external delivery center. Working with an ODC with which you would have zero communication problems will be much more effective. Therefore, you should pay attention to the knowledge of English and look for as few cultural differences as possible to achieve seamless collaboration.
How to set up an ODC?
Now, assuming that you have done the analysis and selected the country and the company that will set up the development center, let us move on to the actual work required to set up an ODC project.
Plan the organizational structure for the new team and prepare to onboard them
Each member of the external team must understand his or her role and responsibilities right from the start. Therefore, you should plan their engagement, discuss with the supplier how exactly you want the cooperation to look like to let them prepare their employees and designate people responsible for the onboarding process. To learn more about effective knowledge transfer and cooperation kickstart, check our previous article.
Create descriptions of all open positions
When selecting potential employees, lists every requirement the candidates should meet, from qualifications, education experience and soft skills – you can use our proven practices.
Plan the development process
Select the approach to software development (i.e. SCRUM, Kanban) and agree on communication schemes to ensure everyone keeps their hand on the project pulse. Additionally, remember to share the project roadmap and timeline with your external team so they will always know where the true north is.
Once the work starts, give the offshore development team some time to find their place in the company. This applies to both the relationship between team members and between members and the manager to whom they report any problems. Every team member should learn how to report issues so these can be managed and resolved as quickly as possible.
If the company has several teams, establish areas of responsibility between them, or merge the workforce into one if necessary. Pooling/splitting of responsibilities can involve both offshore and in-house teams, which can work in parallel or cooperate closely together, or even several offshore teams delivered by the selected ODC provider.
Most offshore development center contracts are based on time and materials or fixed price contracts. Choosing one that fits best depends on your needs, so if you’re not familiar with the differences between these, we highly encourage you to take a look at an article in which we analyze their pros and cons to ensure making an evidence-base decision.
Key roles in the Offshore Development Centre
When establishing an offshore development center, start by identifying and discussing the key roles that the company establishing the ODC must provide. While the particular competencies depend on specific needs (we cannot predict what experience a programmer should have without knowing the stack used in the project), we can discuss the main groups that make up a full offshore development center:
Account Director – responsible for managing cooperation at the highest level, meeting the strategic goals and expanding the partnership
Account Manager – the person in charge of managing the relationship with the client, whose aim is to ensure meeting all the objectives in the best possible way
Software Delivery Managers – as with all of the following roles, the number of Delivery Managers provided by the vendor will depend on the size of the collaboration. However, in general, they are responsible for the whole project, from planning to delivery, making sure that the software created fits all the requirements.
Business Analysts and Product Owners – responsible for requirements management.
Software Architects, Developers, DevOps – responsible for creating software architecture, developing, testing and maintaining software and infrastructure.
Test Engineers – responsible for checking the integrity, quality and non-functional requirements of your project.
UX/UI – responsible for visual concepts and tone of voice to promote the persona or brand of your project.
Content and Technical Writers – responsible for writing instructions and content integrated into your software, consistent with your brand communication style.
Delivery Center Governance – reap all the benefits of OCD cooperation
Treat your in-house and offshore teams equally
Both are equally important to the overall success of your business, so your offshore team must be treated the same, rather than as a separate, supportive team. Include them in the decision-making process and maintain a harmonious relationship between your internal and external teams, which will result in workplace camaraderie and high productivity.
Communicate the bigger picture of your organization
Although an OCD team works from a remote location, they are as much a part of your company as the in-house teams. It is important that every member of the ODC team is aware of the big picture and acts accordingly, ensuring that both in-house and overseas teams are working towards a common goal.
What goes into the big picture?
First, make sure you communicate clearly your company’s mission, vision, values and culture, so that your ODC team knows they are working towards a certain purpose. A team that is driven by purpose is more likely to be more engaged in their work and more productive.
Second, communicate your product vision, which should align with your company’s goals and which will serve as a guide for your offshore team to make decisions throughout the project. Your offshore team needs to understand that even the smallest, simplest choices they make are connected to the larger goal of the company.
Finally, when your offshore team is working on the project, show them a long, comprehensive list of tasks and priorities, so if they get stuck on one task, they can always move on to others.
Ensure clear communication
Communicate your expectations clearly and concisely. Chances are that your offshore team may have a completely different cultural background to you. They may even have difficulty communicating in English if you decide to open ODC in a country with poor knowledge of this language. In such cases, get straight to the point and make sure everything is understood.
Use effective communication tools to better present your ideas. A screenshot or quick video sent to the offshore team can be more helpful than hours spent poring over instructional documents. Hold meetings and video conferences via platforms such as MS Teams, Zoom, or Webex to keep your finger on the project’s pulse.
Keep your ODC team engaged
Motivation and engagement are crucial to success. Hence, below you will find a few examples, based on our experience, on how to manage the level of engagement
Share the project vision – sharing information about the business product’s purpose and the vision of the project delivery will help team members understand what they do and why, both now and in the future. It addresses the most important factor of work-environment well-being – psychological safety.
Provide challenges – Never treat your offshore team as a mere prop of your internal team. They are skilled developers with excellent knowledge and skills, so don’t be afraid to show them your high expectations. Assigning them critical and challenging tasks can increase their motivation and improve business performance. Moreover, it helps them lean into challenges and as result, helps them grow professionally.
Such an approach will also result in developers acting proactively and not being afraid to speak their minds. Due to their wide experiences in numerous environments, their perspectives are priceless, and they might even come up with technical solutions that wouldn’t have occurred to you and might bring great value to the project.
Encourage autonomy – allow your team to self-manage and make their own decisions whenever possible. There’s no point in constantly telling a remote team what to do and how to do it. Instead, show that you trust your team by allowing them to decide how they will complete their tasks. However, it’s important to set rules on the ODC team’s control and always maintain effective communication between you and your team.
Ask for their opinions – when you make a business decision, show that your offshore team’s opinions matter by encouraging them to contribute their ideas and thoughts or share feedback with you. When offshore employees feel valued, they are more likely to share valuable ideas and remain engaged in their work, while their point of view might provide value you hadn’t thought about.
The topic of ODC is so broad that a thorough description of all its intricacies would require the preparation of a very long ebook, and in all probability, even such material would not answer all possible questions – after all, no two co-operations or companies are exactly the same. Therefore, treat the aforementioned material as the basics that can be expanded when considering cooperation with an external partner in an ODC model. If you would like to discuss how to make the most of such cooperation in your situation, please use the form at the bottom of the page – we are happy to share our experience and help dispel any doubts so that you can reap all the benefits of this kind of cooperation.
What is the purpose of Offshore development center (ODC)?
Offshore development centers (ODCs) are established by companies in countries with a strong talent pool and competitive cost advantages to provide businesses with a strategic and cost-effective solution for software development and IT-related projects. ODCs are dedicated offshore units that serve as an extension of a client’s organization. They offer access to skilled professionals, specialized expertise and advanced technologies. ODCs make it possible for businesses to scale their development teams quickly, by taking advantage of the local talent without the challenges of establishing a physical presence in a foreign market. These centers facilitate long-term partnerships by enabling seamless collaboration, effective communication and project continuity. By leveraging ODCs, companies can accelerate their project timelines, reduce development costs and enhance their overall competitiveness in the market.
What is the difference between an offshore development center (ODC) and outsourcing?
Outsourcing and offshore development centers (ODC) are two related concepts in business services, but they have different scopes and approaches. Outsourcing involves contracting specific projects, tasks, or services to external third-party vendors. These vendors may be located locally or internationally and can offer services such as software development, data entry, or customer support. On the other hand, an offshore development center (ODC) is a business model where a company establishes its dedicated development facility in a foreign country. Such a facility extends a client’s organization and is used for software development or IT services. Unlike outsourcing, an ODC is a customized, long-term solution that provides access to specialized talent and infrastructure, while enabling a client to control the development process. In conclusion, as opposed to outsourcing, which encompasses a variety of services, an ODC usually focuses on dedicated development units in foreign countries.
How do you choose the best location for setting up an offshore development center?
Choosing the right location for an offshore development center (ODC) requires thorough analysis of various factors. First, you must assess the availability of skilled staff in the region, largely by evaluating the education system and talent pool. Cost-effectiveness is also crucial, so you should compare labor, operational and infrastructure expenses among potential locations. Time zone compatibility is vital for real-time collaboration, so you should choose a site with working hours that overlap with your primary operations. Additionally, it’s worth assessing the quality of infrastructure, including reliable internet connectivity, and consider cultural compatibility, especially as regards language proficiency and alignment with your work ethic. Furthermore, it is essential to assess the legal and regulatory environment, with a focus on data security and intellectual property protection. Lastly, you should factor in political stability to mitigate potential risks. If you evaluate these factors thoroughly, you should be able to choose an ODC location that best aligns with your business goals and operational requirements.
What are the main benefits of using offshore development center services?
Offshore development center (ODC) services offer a range of advantages to businesses. Firstly, they enable access to skilled professionals in regions with lower labor costs, which result in substantial savings on salaries and operational expenses. Secondly, an ODC provides access to a wide range of specialized skills and expertise that may not be readily available locally. Thirdly, companies can scale their teams up or down quickly based on project requirements, which enhances flexibility. Time zone differences facilitate round-the-clock operations, ensuring continuous workflow leading to faster project completion. Collaboration with global talent fosters diversity and brings fresh perspectives and innovative solutions. Additionally, ODCs often offer robust infrastructure, advanced technologies and adherence to international quality standards, which ensure high-quality output. Overall, leveraging ODC services boosts efficiency, innovation and competitiveness for businesses looking to expand their capabilities globally.
About the authorTomasz Krakowczyk
Software Delivery Director
An expert Software Delivery Director and Agile Coach who has cooperated with and consulted for companies of all sizes - from disruptive startups to established market leaders. Tomasz believes that the best way to smoothly run a project is to combine modern methods, tools and techniques, remain open to new approaches and adapt to changing realities. His wide experience enables him to not only organize the work of development teams (50+ people) and manage cooperation with Software Mind's clients, but also mentor and lead Project Managers, Scrum Masters and Agile Coaches.