Climate change causes one type of drought. Incessant demand for software development causes another: a constrained supply of talent. A Korn Ferry report estimates that by 2030 there will be a talent shortage of more than 84 million experts. Already, 54% of global technology organizations report that a lack of talent was impeding their progress.
Per recent reports, the Bureau of Labor Statistics estimates that the shortage of software engineers in the United States will likely surpass 1.2 million by 2026. And you know what happens when scarcity looms—acquiring said talent becomes a lot more expensive.
To manage such a scary situation, many companies and startups are adopting a globalized approach by crossing borders in search of tech expertise that they may not be able to find in their local environment – and all at a more affordable cost.
Behold the emergence of the Offshore Development Center!
This article will describe what an offshore development center is, as well as its key benefits and challenges. Let’s get started!
An Offshore Development Center (ODC) is a dedicated office –either a virtual office or a physical one – that provides software development for your company and is located in another country.
While an ODC provides full and integrated services that are 100% dedicated to you and your roadmap, it is often set up by a third-party (offshoring) company to deliver it exactly to your needs. However, you call all the shots.
An ODC is a more inclusive version of offshoring. In this model, it’s like having an international branch of your company, not just a group of experts working for you remotely.
It also provides a development team with the necessary infrastructure and support personnel, including administrative and HR staff to ensure efficiency and optimal output.
Why would you go to another country to have a development center when it could just be done from home?
First, offshore software development centers are situated in countries where you can find expertise at a cost-efficient rate. For instance, some of the top choices for building ODCs include Ukraine, Brazil, Mexico, and Romania. The cost of living in these places is lower than in the US, which means wage costs will also be lower.
Second, with the talent shortage in the U.S. and Western Europe, it’s becoming increasingly difficult and time-consuming to find the right team of developers locally. An ODC makes it easier to find and assemble a team of expert developers as talent in these regions is often more abundant and there are fewer companies competing for their talent.
Want to build an offshore development center but have no clue where to begin? We’ve got you. Let’s build out your global team together.
People often confuse the ODC and outsourcing concepts to essentially mean the same thing. But these two models aren’t just different ways of saying the same thing. Let’s look at the key differences:
| Comparison Criteria | Offshore Development Center (ODC) | Traditional Outsourcing |
|---|---|---|
| Location | An offshore development center is located in a different country than a client’s main headquarters. An ODC establishes a company's corporate presence overseas. | Outsourcing is not defined by location. Though it usually means an offshore location, some outsources are local. Moreover, outsourcing does not represent a client’s brand in a local market – it’s only a short term contract for service. |
| Team | An ODC is a fully dedicated team working to deliver a client’s project over the long term. An ODC offers continuous support even after delivery. An ODC is an extension of the company so they collaborate with the in-house development team and take instructions from the home office. | An outsourcing team can be working on multiple projects at the same time, meaning the team is not wholly dedicated to a client’s project or product goals. Outsourcing is only used for the temporary duration of the project. The outsourcing team works for the agency who hired them and there is minimal collaboration with the client team. |
| Management | The client has complete control over the affairs of the ODC and determines all rules and processes. ODC teams undergo onboarding training and are integrated into your brand’s culture. There is a clear delineation of roles and hierarchy of command between the ODC and in-house teams. ODCs are typically more efficient with delivery since the team is embedded and it is an integral part of the entire development process. | With outsourcing, the client plays little role in the outsourced team’s operations and management. Outsourcing teams are like temporary contractors; they deliver your project and move on. Outsourcing teams are very independent and are not integrated with the in-house client team. |
There is no clear winner as both development models are great for specific cases. In the end, what matters most and what should inform your decision is the project type and duration. (We are mainly talking about ODCs in this article, but if you want a deeper dive into outsourcing and it’s benefits, you can find it here!
So now let’s compare ODCs versus an in-house team.
An offshore development center and an in-house team both offer the benefit of having a dedicated and integrated product team. But they have major differences, especially with regard to hiring and management.
| Comparison Criteria | Offshore Development Center | In-House Team |
|---|---|---|
| Cost | ODCs have lower hiring costs and salaries since developers are offshore (vs. local). Setting up the ODC is mostly the responsibility of your offshore development partner so you spend less on infrastructure. Most ODC models do not require you to pay extra benefits like insurance or PTO. You don’t have to worry about taxes and liabilities (your offshore partner handles that). | Growing your in-house team (assuming it’s in the U.S. or Western Europe) means you assume higher wage costs (often double compared to offshore countries). You bear the full cost of setting up an office space and the necessary infrastructure. You will be required to investigate, find and pay employees benefits. You open the company up to potential tax and HR liabilities. |
| Scaling | An ODC allows you to quickly expand or scale your team according to ever evolving needs. | You can’t quickly scale your team because you will need to go through a rigorous hiring process for every type of developer you need—and that’s if you can even find good talent locally in the first place. |
| Communication | An ODC requires you to put more effort into communication especially if there is a time-zone difference between the home office and the ODC. | Communication is often easier and more effective since everyone is situated in the same place or time zone. |
| Brand Expansion | An ODC offers an opportunity to build an international reputation and have an overseas presence. | An in-house team is locally based and as such cannot do much in terms of building an international footprint for your brand. |
| Security | You need to pay close attention to ensure that your ODC partner has a robust and secured infrastructure to avoid digital exploitations. | Security worries are mitigated because the infrastructure is as robust as you want it to be. And the team strictly follows the company’s existing security protocols. |
There are three major offshore development center models, all of which offer different benefits and are suited for distinct circumstances. Let’s check them out:
If you like the “rent-to-own” model, then BOT is ideal for you. It’s a great way to understand the business factors and operational demands of setting up an ODC in that country before taking it over.
With this model, there is an understanding that the hiring company would completely assume ownership of the resources and infrastructure after a defined length of time. Existing employees of the ODC also become full-time staff of the company, which explains the name of the model.
This is where it all starts; following the conclusion of a contract with an ODC partner, they put up all essential facilities, including staffing. The ODC partner makes certain that the hired staff can successfully meet the client’s demand.
The ODC partner works on the ground to maintain and develop the center; however, all major decisions are decided by the hiring company. The ODC partner oversees the operations and as much as possible reflects the hiring company’s goals and objectives in its managerial affairs.
At this stage, the client assumes full control and ownership of the ODC. When the transfer occurs, the ODC ceases to be an offshore center and becomes a foreign office of the client, complete with its own Profit & Loss statement.
The Build-To-Scale model is an ODC that is suitable for software companies aiming to set up long-term engineering operations and broaden their line of development. These companies embrace a growth-oriented approach, and they may have previously worked with offshore entities. However, they now require the commitment and strength of an ODC to support their expansion goals.
The ODC model for product engineering is suitable for companies looking less for autonomous, independent development teams and more for a team(s) of developers who act as extensions of existing groups within the product organization. In other words, this model could be called the “Additional Firepower” model because it is more about adding contributing team members to an already formed team that exists locally.
Confused about which model is right for you. We’d love to answer all your questions and set you up for success.
Thinking an ODC is your game? Here are 8 specific benefits you’ll love:
Everybody would always prefer an efficient (cheaper + quality) alternative. This is why Black Friday and Cyber Monday sales always bring massive crowds—you get what you’ve been pining after all year at big discounts. When it comes to software development, ODC is like a Black Friday sale, except everything is on sale all the time.
A recent report asserts that outsourcing, can save hiring costs by up to 90%.
Setting up a software development center in a popular offshore country like Ukraine, Romania, or Brazil will cost much less than in the US. You cannot compare the cost of rent in New York to a place like Kyiv. So from acquiring a location to setting it up, it’s all part of the savings game with an ODC.
Most companies aspire to expand their product and brand into other countries. It helps with growth and enhances revenue. Setting up an ODC is one of the best strategies to progressively build that international presence in a foreign country. You can leverage your ODC to build a brand reputation in the host country.
An ODC promotes globalization and diversity in many ways. First, you will have people from different backgrounds, cultures, religions, etc. working with you, which opens your teams up to new perspectives and worldviews to promote innovation. Also, you have a team of people with diverse skill sets all working on your product, which enhances efficiency and drives quality.
Establishing a software development center in an offshore location gives you access to the talent there in addition to what you have in your home country. With this, you operate more efficiently and deliver your projects/offerings in a better and more timely fashion.
Unfortunately, there is often an uneven distribution of tech stack proficiency across the globe. Some locations have better expertise in a particular technology than others. With an ODC, you will be able to access the specialized technical expertise that may be scarce in your home country.
The need for more frequent software releases is at an all-time high. But hiring additional members for your in-house team can be time-consuming and expensive. One of the best strategies to ensure continuous operation and faster output is by setting up an ODC. This is a great insurance policy against disruptions or delays in operation.
Operating an ODC naturally imposes the need to strengthen your security infrastructure and implement robust measures, which is a positive factor in the long run. In short, it forces you to find and resolve any potential security risk.
To be fair with you, there are a few potential challenges that may impede the efficiency of your software development center, including:
Partner with a service provider that is experienced in managing legal structures in the most popular offshore locations.
Setting up an offshore development center can be overwhelming, especially if you are new to this model. But that’s why we are here, to help you understand some of the intricacies and steps to take, including:
There could also be a need for other professionals not mentioned above. The important thing is to have an idea of what you might need to get started.
Your ODC partner will play a crucial role in the success of your ODC. Keep in mind that since you are probably entering an uncharted area, you will rely heavily on your partner’s counsel, recommendations, and hard-earned experience. You just have to ensure that you choose the right ODC company. (Hint: It’s TurnKey!)
Here are a few action items to help you choose the best ODC partner:
Or make it easy on yourself and just hire TurnKey. We’ll set you up the right way from the very start.
Over the years TurnKey has developed a reputation for creating high performing offshore development centers and building A+ software development teams for our clients. We’ve been able to establish such a high degree of excellence by reinventing the existing procedures and cultures of designing an ODC.
An offshore development center helps you scale your engineering efforts by offering much greater access to top quality talent, all at a cost that is surprisingly budget-friendly.
An offshore development center means a dedicated presence or office in a foreign country that provides expert software development for your company. While the development team is usually fully dedicated to the company, the ODC is often set up and managed by a third-party (offshoring) partner to deliver against the company’s specific needs.
Working from an offshore development center means setting up an office space or virtual presence in a different country. In this model, you have a full office set up for your company's work, or –if all the work is remote–staff members will mainly collaborate online and then get together face-to-face on a somewhat regular basis for key meetings or events. Think of an ODC as an international branch of your company’s development team, not just a group of engineers working for you remotely and independently.
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