In brief
- Setting up an offshore development center (ODC) can be an effective way to source software engineering talent, by providing access to lower cost markets
- Choosing the right location and navigating the operational aspects of setting this up can be complex
- This article breaks down the benefits and challenges of an ODC, the merits versus outsourcing and in-house development, and how to get started
Finding the right talent at the right price has always been a challenge. But if you’re looking to expand your software development capabilities in 2024, this challenge is even more difficult to overcome. Unfavorable economic conditions, from persisting inflation to high interest rates, are increasing cost pressure across the board.
Due to that cost pressure, software development vendor clients have cut budgets, slowed their spending, or simply switched to more cost-efficient solutions in 2023. At the same time, hiring for tech, information, and media roles in the United States slowed down by a whopping 42.9%, according to LinkedIn’s latest Workforce Report.
Despite all that, nearly 90% of US-based tech industry leaders name recruiting a moderate or major challenge.
Setting up an offshore development center (ODC) can be a suitable way to close the talent gap while leveraging lower labor and infrastructure costs in offshore locations to improve cost efficiency. That said, that doesn’t mean that this model is a one-size-fits-all solution to tech talent shortages.
Let’s break down what an offshore development center is, its benefits and challenges, how it compares to outsourcing and in-house development, and how to get started with an ODC.
What is an offshore development center?
First things first: What is an ODC? An offshore development center, or offshore delivery center, is a development facility in an offshore location with a dedicated development team, office space, on-site administrative staff, and all equipment and infrastructure necessary to function (an offshore location is more than three time zones away from yours).
The ODC acronym is also used to refer to nearshore development or delivery centers. In this case, your team, along with the office itself and administrative staff, are located nearshore (up to three time zones away).
High-level purpose and setup are the same for offshore and nearshore development centers. The main difference between the two is the time overlap with the in-house team: It’s greater for nearshore centers. Nearshore development centers also tend to be more expensive than their offshore counterparts.
Further in this article, we’ll be using ODC to signify offshore development centers.
What sets an offshore development center apart from other offshore development services is that it’s tailored to your organization’s needs. The development team can take on any tasks you may require, from tech and business support and administrative activities to end-to-end product development. Think of an offshore development center as an extension of your in-house staff located offshore.
You can set up an offshore development center yourself or turn to a partner with an established presence in your ideal destination. In the latter case, recruitment, accounting, office setup, legal tasks, HR management, local IT support, security, and other administrative tasks fall under the responsibility of your ODC partner.
5 key characteristics of ODC
Here are the five characteristics that describe the offshore development center model:
- Tailored to your needs. Security measures, team composition, infrastructure setup, project management practices, and other development aspects are customized to fit your requirements and preferences
- Built for long-term engagements. An ODC is meant to expand your development capabilities in the long run (e.g., you need a team to continuously maintain and update an existing product)
- Flexible and scalable. You can scale your development team up and down as needed and change the scope of work if necessary
- Self-contained. An ODC includes all administrative staff necessary to run the center, from tax and HR management to project management
- Dedicated to your business. An ODC development team is by default composed of dedicated offshore developers, meaning that they work on your projects exclusively. This maximizes their engagement and commitment, and incentivizes initiative-taking
Contractor vs. customer ODC model
There are two key approaches to offshore development services you may come across, depending on the client’s level of involvement:
- Contractor ODC model. In this case, the ODC is owned and operated by a vendor, meaning it sets up and manages local infrastructure, on-premises and data security, operations and office space. It also takes care of recruitment and can take on product or project management if the client delegates this responsibility to the vendor under the managed services/managed delivery engagement model
- Customer ODC model. Under this model, the client owns the offshore development center as any other company branch. Setting up an ODC can involve relocating a team or hiring one on the spot. Normally, all operations, including recruitment, are run by the customer themselves but local vendors can be involved. This model is typically suitable for large enterprises
Both of these approaches don’t negate the client’s full control over security, regulatory compliance and product development requirements. Whichever model you choose, the ODC will serve as your secure perimeter that is set up and managed by your rules.
7 benefits of offshore development center services
Here are the seven reasons you may consider setting up an offshore development center.
Enhanced risk mitigation and security
Compared to outsourcing, an offshore development center comes with the strongest advantages in the field of security and risk management.
This offshore development model gives you ultimate control over security and risk management protocols and practices. That includes establishing both the physical security of the premises and data security, along with fulfilling regulatory requirements and ensuring business continuity in processes and output quality.
So, you can require your ODC team to follow specific network security standards, set up the local infrastructure with specific risk management protocols in mind, and more. However, if your security, compliance, and business continuity requirements can’t be met in an offshore location, setting up an ODC is not a suitable option for you, no matter how cost-efficient it may be.
Access to the global talent pool
Recruiting developers with the right skills remains a top challenge for 50% of businesses, according to Deloitte. Offshoring removes geographical constraints and expands the available talent pool, facilitating and speeding up recruitment.
At the same time, extending your tech talent search to offshoring locations allows you to find experts in emerging technologies, such as deep learning, computer vision and extended reality.
Cost savings
Cost pressure remains a main concern for companies looking to expand software development capabilities. According to Accelerance, hiring a development team offshore can help you save between 39% and 72% in costs, depending on location, compared to hiring an onshore team in Seattle, Washington.
There are several reasons why setting up an ODC is more cost-efficient. Offshore locations have a lower cost of living, which translates into lower labor costs. Infrastructure costs, such as office rent, are also lower. On top of that, certain jurisdictions incentivize the tech sector via tax incentives, which also contributes to lower rates overall.
Facilitated recruitment and management
If you decide to hire offshore developers yourself to set up a remote team, there are a lot of caveats you have to navigate. First, you need to invest time and money into recruitment, both for developers and administrative staff. Then, you have to set up the infrastructure for the team to work as expected.
But if you partner up with an offshore development service vendor, they will do all the heavy lifting when it comes to vetting specialists’ skills (although you can still make the final hiring decision if you want), managing day-to-day operations and complying with local regulations. So, you won’t have to dedicate resources to studying the jurisdiction’s tax code or resolving HR issues.
Local expertise
If you’re planning to expand your business to the market or region where your dedicated offshore development center will reside, its members can provide valuable input to help you navigate its peculiarities. For example, you can task your ODC with:
- Localizing your product
- Conducting market and user research
- Adapting product design to local trends
Continuous coverage
As an extension of your in-house team, an ODC can pick up your operations when your in-house team is done for the day. This enables you to ensure business continuity around the clock, speeding up time-to-market for new features or products.
Continuous coverage can also be beneficial if you task your ODC team with maintenance and support. An offshore development center can ensure these two areas are taken care of at all times. An ODC team can also identify and promptly respond to security incidents or breaches, as well as maintain critical functions.
Full control over every aspect
In a customer-owned dedicated offshore development center, you have the ultimate control over every aspect of its operations. Therefore, you can tailor it to your needs, processes, quality standards and best practices.
For example, if you have specific security protocols that you need to maintain, the ODC team will oblige. But this goes beyond security and compliance. You can establish standards and best practices for maintaining output quality, keeping communication efficient and addressing business disruptions.
In a vendor-owned ODC, the same can ring true. However, the allure of a vendor-owned ODC is that the vendor does all the heavy lifting like managing communications and establishing quality control processes.
7 challenges of working with an ODC
Of course, opting for an offshore development center comes with its own set of challenges. Here are the seven key ones among them, along with solutions from Zoreza Global’s experts:
| Challenge | Solution |
| Security and intellectual property risks | Conduct a security risk assessment before setting up an offshore development center Implement a strict data protection policy for sharing data Draw up and sign non-disclosure and non-compete agreements and add intellectual property clauses to contracts |
| Talent quality and retention | Conduct technical interviews to screen developers and other professionals even if they are vetted by your ODC partner Offer a competitive compensation package and growth opportunities to retain talent and prevent high turnover |
| Communication gaps and misunderstandings | Establish clear communication channels Schedule regular meetings to ensure everyone is on the same page Be proactive about ensuring your requirements and messages are clear and easy to understand |
| Cultural gaps | Ensure team members are proficient in English or other preferred languages to avoid language barriers Opt for an ODC partner that has worked with companies from your region in the past |
| Significant time zone difference | Define when synchronous communication is a must; otherwise, leverage asynchronous tools Ensure the ODC and in-house team use knowledge transfer frameworks to avoid unnecessary back and forth between teams |
| Knowledge transfer | Maintain a comprehensive wiki or internal knowledge base, with contributions from both the in-house and ODC teams Ensure the code is properly commented and comes with a complete set of test cases |
ODC vs. in-house team: What’s the difference?
Now, how does setting up an offshore development center compare to hiring an additional in-house team? Here are the three key differences between the two approaches:
- Location. You may choose to assemble a remote in-house team, but the majority of tech workers in the US still work partially (52%) or fully (28%) in office. So, most likely, your in-house team will work in one of your current locations. An offshore development center, by definition, is going to be more than three time zones away from you
- Costs. In-house employees come with plenty of additional costs, from recruitment costs to benefits, payroll taxes, office space and equipment (real employment costs are typically 1.25 to 1.4 times higher than the salary). While an ODC may entail some of the same costs (e.g., infrastructure), they’re lower offshore. Other costs, like payroll taxes, don’t concern you if you turn to a partner to open an ODC
- Speed. If you partner up with a local vendor to open an offshore development center, they already have a pool of specialists ready to join the ODC. So, you can put together your team faster compared to in-house recruitment
At the same time, an offshore development center can still provide an in-house level of involvement and commitment to your business since the team caters exclusively to your needs. So, in this regard, the two approaches don’t differ that much.
8 key aspects of setting up an offshore development center
If you deem the offshore development center model a suitable solution to your development needs, here are the eight considerations you should keep in mind when you set up one.
Define your needs and goals
First, you need to identify what tasks the offshore development center would take on and what you want to accomplish by setting up one. Determine the level of control you expect to exercise over the offshore team, the available budget and the appropriate ODC model as well.
Consider feasibility
It’s always a good idea to conduct a feasibility analysis before committing to the idea of setting up an offshore development center. Consider opportunities, strengths, weaknesses and threats, along with required vs available resources. Pay close attention to talent availability, legal and compliance restrictions, potential risks and financial costs.
Settle on the ideal location
When comparing locations for an offshore development center, consider the:
- Expertise available in the country
- Security and compliance requirements
- Labor, office space and infrastructure costs
- Cultural differences
- Time zone differences
- Internet connectivity
- Exchange rate volatility
- Geopolitical stability
- English proficiency
Decide on the DIY vs. vendor approach
You can choose to set up an offshore software development center yourself by registering a branch in the preferred location. In this case, all the legal, accounting, recruitment, infrastructure setup and management activities fall on your shoulders. Alternatively, you can turn to a company like Zoreza Global to take those tasks off your plate.
Set up the infrastructure
Ensure the infrastructure isn’t only sufficient for the team to be productive, it should also make all operations as secure as possible. So, beyond the office space and equipment, you should consider:
- Setting up backup systems
- Securing the network
- Ensuring permission-based access to both sensitive data and the premises themselves
Select the team
If you choose to open an offshore development center yourself, you’re in charge of all the recruitment processes, from creating and posting job openings to screening, interviewing and selecting candidates. This can prove to be time-consuming and costly. Alternatively, your ODC partner can facilitate the process by giving you access to its internal talent pool.
Onboard the team
Once all the roles are filled, you’ll need to ensure the team is on the same page regarding your in-house operations, values, standards, protocols, expectations and management style. You should also clearly define communication and project management tools, roles and responsibilities, and knowledge management and transfer measures during onboarding.
Monitor performance
How will you know that your offshore software development center team meets your needs? This is where key performance indicators come in. Define these metrics in advance, communicate them to your offshore team and track them to quantify the team’s performance.
Your checklist for setting up an offshore development center
Here are the 15 steps to getting your offshore software development center up and running:
- Identify your needs, goals, scale and scope of work for the ODC
- Conduct a feasibility analysis and assess risks associated with offshore development
- Determine the expertise your ODC team will have to possess
- Find an ideal offshore software development center location
- Understand the applicable legal and compliance requirements
- Outline policies to protect your sensitive data and intellectual property
- Select a reliable offshore partner (optional)
- Set up the infrastructure
- Ensure compatibility and seamless data exchange with existing systems
- Ensure the internet connection is reliable in the offshore location
- Prepare job descriptions for each offshore role
- Interview candidates and select your team members
- Establish communication channels, regular review meetings, project management tools and key performance indicators
- Onboard your ODC team
- Monitor the performance of your offshore software development center
6 offshore product development locations to consider
If you’re not certain where to start with your location selection, here are the five prominent offshoring destinations for businesses based in the US and Western Europe that you may want to consider for your offshore development center:
| Country | Time zone | EF English Proficiency Index 2023 | Global Innovation Index 2023 | World Talent Ranking 2023 | Global Services Location Index 2023 |
| Bulgaria | UTC+02:00 | #16 | #38 | #58 | #25 |
| India | UTC+05:30 | #60 | #40 | #56 | #1 |
| Malaysia | UTC+08:00 | #25 | #36 | #33 | #3 |
| Poland | UTC+01:00 | #13 | #41 | #44 | #13 |
| Romania | UTC+02:00 | #15 | #47 | #53 | #30 |
| Ukraine | UTC+02:00 | #45 | #55 | N/A | #42 |
In conclusion
Setting up a dedicated offshore development center, be it under the customer or contractor model, can help you leverage lower labor and infrastructure costs to ramp up your development capabilities. However, it’s not a one-size-fits-all solution. It’s most suitable for organizations that:
- Have scale and resource requirements to justify the investment
- Have strict data security requirements
- Need cutting-edge tech expertise
- Want an in-house level of commitment and involvement
- Expect to use the ODC services for long-term, large-scale projects
There are certain caveats to setting up an offshore development center. You have to gain a full understanding of your legal and compliance obligations before you kick off the endeavor. You will also need to invest time in setting up the infrastructure and recruiting team members.
This is where an ODC partner can come in and facilitate the whole process. If you’re considering setting up an offshore development center, don’t hesitate to contact Zoreza Global’s experts to discuss how we can make this undertaking a breeze for you.
Alexey Zagorodniy
Alex leads complex pre-sales initiatives and client engagements for tier-one financial firms, applying his depth of industry experience and hands-on knowledge of IT market specifics in different countries. Now based in London, Alex has an international background, having lived, worked and studied across Europe.
