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What is an Offshore Development Center(ODC)

3 October 2023
What is an Offshore Development Center(ODC)

An offshore development center is a business model that enables organizations to have a dedicated team of offshore developers working exclusively on their projects. An ODC is a remote office set up by a company in another country to leverage the benefits of IT outsourcing while minimizing the associated risks.

The approach helps reduce costs, access a larger talent pool, and benefit from the time zone differences that can facilitate round-the-clock development work. The team comprises skilled professionals, including software developers, quality assurance engineers, project managers, and business analysts, who are hired to provide high-quality software development services to clients.

The ODC model offers a range of benefits over traditional outsourcing models, including the development of domain-specific expertise, faster deliverables, better control over the development process, and enhanced communication and collaboration between the offshore team and the client. Moreover, since dedicated software development teams work exclusively for a particular client, the team is better integrated and more aligned with the client's business objectives, translating into faster and more reliable delivery of high-quality products.

ODC vs. Outsourcing

ODC is an outsourcing model in which a company establishes a separate entity, usually offshore, to perform specific business processes or software development work. This is done with the primary goal of reducing costs while maintaining high-quality levels. With an ODC model, companies can leverage the expertise of offshore teams to tackle specific project requirements or operational needs.

On the other hand, outsourcing is an arrangement where a company delegates the performance of particular business functions to an external organization. Companies typically outsource their non-core business functions to third-party vendors specializing in these areas. This reduces costs, improves productivity, and enhances overall efficiency.

One of the key differences is the level of control the company retains over its operations. In the ODC model, the company usually has more control over the offshore entity. In contrast, in the outsourcing model, they have less control over the activities performed by the vendor.

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Offshore Development Center Models

ODC aims to leverage the benefits of globalization and knowledge arbitrage to improve outsourcing efficiency, reduce cost, and improve quality. In this regard, two types of offshore development centers exist.

Contractor Model

The vendor assumes full responsibility for project development and delivery in this model. They allocate resources, develop the software, and deliver the finished product to the customer. The customer retains ultimate control over the project, but the vendor handles all project-related activities and assumes the related risks. The model is ideal for companies that lack the requisite IT expertise to manage offshore development centers and want to minimize their involvement in the development process.

The contractor model typically involves a fixed price, a fixed time frame, and a detailed scope of work. Because of these factors, the overall development cost is usually lower than the customer model.

Customer Model

In this model, the customer retains complete control over the offshore center and projects being carried out. The vendor provides resources and expertise, but the customer defines the project scope and retains overall responsibility. The customer model is ideal for companies with the requisite IT expertise and can effectively manage an offshore development center.

This model usually involves an hourly rate or fixed-price model and provides greater flexibility for the customer. This flexibility allows customers to adjust the development scope if required, is best suited for projects that require customer involvement and control and where the quality of the offshore deliverables is critical to business success.

The choice depends entirely on the needs and objectives of the particular organization. However, both models provide cost savings, faster time-to-market, and access to a global pool of technology resources. Clear communication, effective project management structures, and a deep understanding of the models' similarities and differences are crucial for successful offshore development outcomes.

How to Set Up Your Own Offshore Development Center

Ready to establish your own offshore development center? There are three key steps you need to take care of.

Step 1: Knowledge Transition

Developing a solid understanding of the organization's business processes, operations, and goals allows businesses to identify the right offshore location and choose a service provider that aligns with their goals.

This might require a lot of time spent with the offshore dedicated software development team to explain the company's goals and operations, the vision and product development process, and any specific work methodologies relevant to the process. The team should familiarize themselves with the company's software development life cycle process to ensure a seamless knowledge transition.

The transfer must also include system and data requirements along with software development-related documentation such as architecture diagrams, user stories, and work processes. Once it’s done, the offshore development center can work efficiently to match the expectations of the businesses and eventually become the backbone of company operations.

Step 2: Appoint Key Workers

Choosing the right team members is essential for the center's smooth operation. Businesses should provide special attention while choosing offshore team members, as they will be responsible for meeting the company's goals.

To ensure effective coordination, businesses should appoint workers well-versed in the company's software methodologies and development standards. They should also hire offshore team leaders with experience in managing a team and an understanding of the local culture and language.

In addition, businesses need to ensure they have a team with technical expertise, experience, and background that matches their company's needs. This team should have a wide range of skills, including coding, software testing, quality assurance, and project management, to ensure that the center can handle any challenges during project execution.

Step 3: Set Execution Target

This involves setting clear goals and expectations, defining performance metrics, and tracking progress. Upon achieving a successful knowledge transfer and appointing this key team, it is of the utmost importance to set performance benchmarks and schedule targets for the completion of deliverables.

Businesses should also establish communication protocols, including regular reporting, daily stand-up meetings, and escalation processes. Establishing effective processes leads to an efficient, responsive, and productive offshore development center. Setting up an offshore development center is a long-term investment and requires careful management and monitoring to ensure success.

Offshore Development Center Risks and Challenges

When setting up an ODC, there are several risks and challenges that organizations need to be aware of. Here are some of the major ones:

  • Communication Barriers: One of the biggest challenges of working with an offshore team is the communication barrier. Differences in language, time zones, and culture can lead to misunderstandings and miscommunication, making achieving project goals and deadlines difficult.
  • Security Concerns: Offshore development involves sharing sensitive information, including code, designs, and business strategies. Therefore, there is always the risk of information leakage and hacking, leading to data loss, financial losses, and long-term reputation damage.
  • Quality Control: Ensuring quality is another major challenge when working with an offshore development team. The remote team may have different quality standards, processes, and tools, making maintaining consistent quality throughout the project difficult.
  • Legal Issues: Legal issues such as contracts, intellectual property rights, data protection, and compliance with local regulations pose a significant challenge regarding offshore development. It is essential to clearly understand the legal framework and hire experts to navigate legal complexities.
  • Resource Management: Offshore development requires managing resources across multiple teams and locations, which can be challenging. Managing human resources, infrastructure, and technology can be overwhelming and requires a comprehensive plan and strategy.
  • Cultural Differences: Cultural differences can pose challenges in managing offshore teams. It is essential to understand cultural variations and embrace diversity, which can help create a cohesive team.
  • Hidden Costs: While offshoring may seem cost-effective, there are hidden costs that organizations need to be aware of. These include setting up a remote team, training, communication, infrastructure, and travel expenses, which can escalate the overall project cost.

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When You Need to Set Up an Offshore Development Center

Setting up an offshore development center has become a popular trend in today’s digital world.

But how to decide whether you need one?

Firstly, establishing an offshore development center could be a solution to scaling your team. There might be instances where a project becomes too large or complex to manage with the existing in-house team. In this situation, offshore developers step in and help to meet the requirements easily. Also, a company might intend to expand its team, but factors like budget constraints or a shortage of talented developers might limit their options. In such a case, offshore developers could be brought on board to enhance the team size.

Secondly, hiring offshore specialists with narrow expertise is particularly useful for a company. Skilled software developers or engineers with a high level of expertise are only sometimes readily available in the local market, thus making it difficult to find specialists with niche skills. Hiring an offshore team with expertise in unique areas solves this issue. Furthermore, access to a broader skillset could be gained, which a company might not have considered previously.

The third significant reason to consider setting up your own offshore development center is to lower operational costs. Offshore development is a cost-effective way of completing projects without incurring extra expenses for office infrastructure, recruiting high-level developers, or maintaining a full-time employee contract. ODCs provide the luxury of leveraging a globally diverse talent pool, helping to reduce costs and increase an organization's competitive advantage.

Finally, setting up your own offshore development center allows you to focus on your product. Timezone differences and project management concerns might hinder the completion of the in-house projects effectively and efficiently. By outsourcing to offshore developers, key staff can concentrate on core business objectives, making the process smoother. This will allow in-house developers to work on strategic company goals and give the organization a competitive advantage in the marketplace.

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