Complete Guide to Offshore Development Centers

This rapidly growing business model acts as an extension of in-house teams, enabling companies to set up offices in different countries that still operate under the same brand. As more and more companies view this as a key strategy for growth, many wonder: How do I set up an offshore development center? Do I really need one? 

Keep reading to explore this topic in more detail, where we’ll discuss key components of working with an offshore development center, benefits, potential challenges, and how to get started.

What is an Offshore Development Center?

An offshore development center, also referred to as an ODC, is an office set up in another country that acts as an extension of a company’s operations. This gives companies access to specialized talent and provides dedicated resources for software development, research, and other IT services. By operating in a cost-effective location, businesses can reduce expenses and improve profitability, making it a valuable strategy for small and large businesses alike. 

This differs from outsourcing, which typically involves delegating tasks to external organizations, often with less integration with the parent company. While both provide cost-effective solutions, dedicated offshore development centers offer more control and collaboration than outsourcing, ensuring better alignment with the company’s strategic goals. 

ODC vs. Outsourcing vs. Own Company

When choosing the right business model for your company, you should know the key differences between offshore development centers, outsourcing, and expanding your own company. 

• Offshore development centers: As mentioned, an ODC is a strategic model where businesses have a dedicated office in another country to work exclusively on their projects. This option provides more control and integration compared to outsourcing, making it a great solution for long-term projects. 

• Outsourcing: Outsourcing enables businesses to delegate tasks to third-party companies, making it ideal for businesses that have changing needs. However, this model limits direct control over operations. Rather than being an extension of a company’s team, outsourcing establishes a contractual relationship where the external provider is responsible for delivering agreed-upon services. 

• Own company: Some companies may choose to expand their internal operations to allow them to handle changing needs. This provides them with more control over in-house employees but requires higher costs and less access to a global talent pool. 

Below, we’ll discuss which businesses could benefit from offshore development center services, helping you better understand if it’s the right option for your business. 

Key Components of an Offshore Development Center

The key components of an offshore software development company include: 

• Infrastructure: By investing in the necessary infrastructure for an ODC, businesses can ensure operational efficiency, scalability, and employee satisfaction. This typically includes an office space to perform operations, reliable internet connectivity, furniture to ensure a comfortable environment (tables, chairs, equipment), and setting up necessary security measures. 

• Technology: Companies must provide the required technology to successfully perform tasks. This may include hardware, secure data storage solutions, development and collaboration tools, cloud services, and whatever else the company may require. 

• Talent: One of the key offshore development center benefits that companies enjoy is newfound access to a global talent pool. For optimal results, businesses should invest in a thorough recruitment process, ensuring they hire the best talent that complies with the required skills, language proficiency, and schedule. 

• Security and compliance: Companies that provide software development services require a high level of data security, meaning they must implement robust security measures to prevent data breaches. This includes implementing secure infrastructure, clearly defining data handling protocols, and complying with data protection regulations. 

• Communication: Communication is the key to creating a successful offshore development center. To ensure proper communication, companies should schedule regular meetings, have clear business processes, and provide employees with the necessary tools to communicate and collaborate from different locations. A review of the challenges in offshore software development highlights that the use of asynchronous communication tools, such as instant messengers or online collaboration tools, showed improvement in collaboration when all team members committed to using the chosen tools regularly. This shows the importance of investing in proper tools and technology to improve collaboration and develop trusting relationships. 

5 Benefits of Working with an Offshore Development Center

Offshore development centers are playing an increasingly important role in business growth, offering a range of benefits that contribute to their rising popularity. Key benefits include:

Cost Savings

One of the primary reasons businesses create an offshore development center is to cut costs. In addition to lower salaries, companies can benefit from decreased expenses associated with infrastructure, electricity, materials, and more. This increases a business’ profitability without sacrificing quality. 

Infosys Limited, a multinational IT company, is a great example of how establishing ODCs across continents can enhance cost efficiency. By shifting more work offshore, Infosys Limited reduced on-site project expenses, which are typically 3-4 times higher than those delivered from India. This strategic move resulted in substantial cost savings, enhancing profitability and growth.

Global Talent Pool

Businesses no longer have to limit their talent pool to local candidates. By accessing global talent with specialized skills, they can tap into diverse expertise and capabilities that were previously out of reach. This can improve business processes and provide clients with new custom services. 

Scalability and Flexibility

Offshore development centers provide flexibility in team size and resource allocation, enabling businesses to easily adapt to changing needs. In addition, their global reach enables them to expand into new markets without significant infrastructure investments. 

A great example of this is how Cisco, a worldwide technology leader, utilized ODCs to scale their operations. Cisco’s global development model allows them to operate around the clock by leveraging time zone differences, enabling them to accelerate product development cycles and improve support services.  

After 10 years of partnership with Cisco, Shiv Nadar, Founder of HCL said, “With maturing Centers of Excellence at CODC, we took technically complex and business critical responsibilities in maintaining and enhancing operating systems and supporting Cisco’s products around the globe, allowing them to concentrate on their core business.”

Faster Time to Market

Having a team readily available to take on tasks saves businesses valuable time, allowing them to solve in-house problems efficiently and get products on the market faster. This benefits both the company and the client, as clients can enjoy faster solutions that don’t compromise quality. 

Improves Organizational Efficiency

Due to the offshore development center benefits listed above, businesses can enjoy overall improved organizational efficiency. By delegating tasks to offshore teams, companies have a new opportunity to strengthen their core business development processes.

5 Challenges of Working with an Offshore Development Center

Businesses that are considering investing in an offshore development center should be aware of the potential obstacles that they may face. This includes: 

Cultural and Language Differences 

Language barriers, cultural gaps, differences in beliefs, and varying working styles are all potential obstacles that may arise. To prevent issues, businesses should be well-educated on their employees’ cultures, doing research on cultural norms to prevent any misunderstandings. In addition, in-depth interview processes should address language constraints and employer and employee expectations to increase transparency. 

IBM, a technology company with a large ODC in India, shares their experience on this topic. “Especially during the starting phases of the case study projects, several cultural misunderstandings were experienced. A typical misunderstanding is the different perception of the word “Yes.” An Indian “Yes” may not only mean “I agree,” but could also mean “I understand what you are saying, but I do not agree with you.” This led to ambiguous perceptions on e.g., the completeness of a work unit or to wrongly interpreted requirements. Being aware of such cultural misconceptions is the basic rule for a successful offshore project.” 

To address these challenges, they explain the importance of cultural awareness, placing special attention on the team members responsible for interacting with the other shore or client. For this reason, training in intercultural collaboration is crucial during the project’s initial phase. 

Time Zone Issues

Businesses may experience time zone issues, making it harder to coordinate and communicate between teams. Having a time overlap window ensures that in-house teams and offshore employees have dedicated time each day to have meetings and collaborate. By using reliable communication tools, keeping meetings to a minimum, and having a flexible schedule, businesses can minimize issues associated with different time zones. 

Quality Control

Maintaining the same level of quality can be challenging for offshore software development centers. This may be due to language barriers, differences in standards and practices, and unclear business processes. To maintain quality among in-house and offshore teams, businesses should enforce consistent quality standards and practices, implement quality assurance processes, and establish clear communication channels. 

Legal Challenges 

Each country has unique taxes, labor laws, and regulations, meaning businesses must perform an in-depth analysis of a country’s legal landscape. This will help them choose the right location based on their specific business needs. 

Integration with In-House Teams

Due to the communication barriers and time zone differences stated above, offshore teams may struggle to integrate with in-house teams. To ensure successful collaboration, offshore team members should be properly introduced to the in-house team to encourage open communication. Companies can also provide cultural training for both in-house and offshore employees and standardize processes to prevent issues. 

How to Set Up an Offshore Development Center

Follow these steps to set up an offshore software development company:

Set your goals

What is your company trying to accomplish by opening an ODC? Whether your goals include increased cost-efficiency, scalability, or access to global talent, your company should set performance metrics to get a clearer idea of how successful your ODC is. This will help you determine whether you need to adjust your strategy to meet your targets. During this initial phase, you should also identify the specific skills and knowledge your employees require to perform their tasks effectively. 

Choose a location

When choosing a location, businesses must consider factors such as cost effectiveness, time zone differences, legal challenges, and cultural differences. We recommend evaluating various locations before choosing the right country for your office. 

Ensure legal compliance

Businesses should thoroughly research the local laws and regulations of the country where the ODC is located, including labor laws, tax regulations, data protection, and intellectual property rights. By consulting a local expert, you can ensure compliance and prevent potential legal issues. 

Collaborate with an established ODC or form your own company

Companies must choose the right ODC model that meets their specific needs. While an established ODC allows for faster project initiation, creating your own gives you more control over operations. Both options provide benefits and limitations, meaning you should evaluate each option to determine the right business model for your specific goals. 

Choose the right partner 

If you do choose to work with an established ODC, you must carefully research and select the right partner. When choosing the right software development company, you should consider their company culture and specific capabilities, ensuring they have the technological capacity to support your needs. 

Set up a solid infrastructure 

Creating a comfortable and reliable infrastructure is an important component of offshore development centers. This typically involves investing in an office space, internet connectivity, furniture, equipment, and the required technology. 

Build a strong team

By performing in-depth interview processes, you can build a team with the right skill set, language proficiency, cultural fit, and ability to adhere to your project standards and goals. This may include a technical skills assessment, a language proficiency test, and reference checks. 

Conduct training and onboard team members

Extensive onboarding is a key element in creating a successful ODC. During onboarding, employers should discuss company values, processes, and the specific responsibilities of each employee. Training should also involve technical training, security protocols, communication expectations, time management techniques, and cultural training.  

Establish effective communication channels 

To facilitate productive teamwork, businesses can leverage platforms that enable real-time communication and collaboration, such as Slack, Zoom, Teams, Trello, Google Drive, SharePoint, and more. 

Monitor performance and optimize

Regular performance reviews ensure that you and your employees are aligned, identifying areas for improvement to enhance business processes and results. This is also a great time to receive feedback from employees, where you can discuss any challenges or insights that they may have. 

Who Needs Offshore Development Services?

Companies that can benefit from having a dedicated offshore development center include: 

• Startups looking to scale quickly: Offshore development centers are a great tool for startups who want to accelerate their growth and reach a larger audience. Since expenses are a big challenge for many startups, ODCs allow them to lower expenses without compromising quality, resulting in optimized resource allocation. 

• Companies needing specialized skills: When a company or specific project requires specialized skills that are hard to find or are very costly, businesses can use ODCs to access top international talent quickly. 

• Enterprises seeking cost-effective ways to manage large-scale projects: Since reducing expenses is a huge motivator for many businesses, ODCs allow them to handle large-scale projects without breaking the bank, offering them various short- and long-term benefits. 

• Companies that require 24/7 support: Companies that require 24/7 support, such as customer support or technical assistance, can benefit from having employees in different time zones, allowing them to properly assist their clients any time of the day. 

Conclusion

Offshore development centers offer businesses a cost-effective solution that allows scalability, access to specialized skills, faster time to market, and overall improved organizational efficiency. While companies may face certain obstacles, such as cultural challenges and issues with quality control, businesses can navigate them by having clear goals and business processes, performing in-depth interviews, and enforcing consistent quality standards and practices. 

If you’re looking to scale your operations, access global talent, and experience cost savings, we recommend partnering with an ODC to help you reach your unique objectives. 

At Scopic, we offer custom software development outsourcing and marketing services to help you achieve your goals and reach a larger audience. Contact us for a free quote. 

FAQs