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How To Set Up An Offshore Dedicated Center?

23 July 2021 • 16 min read
How To Set Up An Offshore Dedicated Center?
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Slava Ivanov
Slava Ivanov
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Andrii Horiachko
Written by Andrii Horiachko
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Getting the software solutions your business needs while keeping the expenses at bay is challenging for many companies. One of the popular approaches to it is employing an offshore development center (ODC). In short, it means you hire a development office with one or several engineering teams. You don't need to burden yourself with a complicated hiring process or build the expertise within your business. Hiring dedicated offshore developers, you might benefit from their professionalism, proper delivery, and organizational comfort. Looks like the perfect solution to your pains, doesn't it? The ODC option can fit both large companies and newborn businesses.

In today's high-paced economic landscape, innovative digital solutions are a must to improve competitiveness – and thus, increase your company’s profitability.

According to payscale.com, software engineers in the US earn about $87k annually.

According to payscale.com, software engineers in the US earn about $87k annually

You have probably come across the high prices of a developer hour in the U.S. or Canada. Setting up or contracting a development center in Europe or Asia can be more affordable without losing quality. Development rates are much lower in outsourcing countries in Eastern Europe. Quite often, the reason is the simplified taxation for the IT industry.

Based on Glassdoor data on average salaries in Western and Eastern Europe, we created the table to compare.

Country Average Salary

Poland

$30,000

Ukraine

$13,333

Slovakia

$24,240

Slovenia

$26,725

Romania

$17,232

Czech Republic

$35,856

Norway

$67,145

Denmark

$78,000

Germany

$68,405

Sweden

$57,984

United Kingdom

$61,067

France

$49,527

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Over the past ten years, China has seen its revenues grow from $1.38 billion to $106.46 billion, making it the land of Offshore Dedicated Centers for large companies worldwide that has shown the greatest growth. Over the same period, India's performance has grown to a revenue of $58 billion.

The level of qualification of European or Asian specialists is not inferior to American ones. Thus, getting the same result while keeping a huge chunk of the budget seems reasonable, to say the least.

So, what is an offshore development center? This detailed guide will discuss the benefits of the ODC model, its difference from outsourcing, and its challenges.

What Is An Offshore Development Center (ODC)?

Offshore development center (ODC) is a physical office branch of a company anywhere globally outside the headquarters. Companies open ODCs to expand their spheres of influence and opportunities in development, cybersecurity, and earnings.

The ideal environment for ODCs is countries with moderate taxation, low cost of living, and, importantly, low development team salaries.

According to payscale.com, software engineers in the US earn about $87k annually

An offshore development center typically ensures the full product development cycle. For that, it provides remote employees with an office, software, equipment, and administrative coordinator. In other words, it is an external extension of your company, bringing the same value to the business as an in-house team would do. The team's composition, the policies it follows, and the goals it pursues are aligned with your business practices.

up to 50%

In other words, it is an external extension of your company, bringing the same value to the business as an in-house team would do. The team's composition, the policies it follows, and the goals it pursues are aligned with your business practices.

H2 Offshore Development Center Benefits

The ODC model has indeed lots to offer. Its advantages drive thousands of businesses to create an offshore office for their software development.

Outsourced or off-shored IT functions worldwide

Here are the main offshore development center benefits.

Getting Access to Leading Technical Experts

The existing developers in your company have expertise in a certain technology. You may not have enough financial or developer resources to attract new clients and projects. That's why creating an Offshore Development Center gives a company a broader spectrum of opportunities.

Hire offshore developers from different fields for a lower cost and delegate the projects that your internal team lacks expertise in. Typically, it is easier to onboard an offshore team than to create one from scratch.

Tehcnologies used by offshore development team

Reducing The Cost Of Hiring Developers

Engineering is expensive. Especially if your HQ is in a country with high price tags for developer services, you can do the math. By hiring developers from other countries, you can get the same quality development for a lower fee. Small businesses or startups will find it particularly beneficial instead of looking for and hiring expensive specialists.

Median salary for developers by experience in US, Germany, Canada, UK, France

The ODC trend is tightly connected to the global changes in the economy as well as higher interest in innovations and digital transformations. “With the market transforming and demanding that businesses and brands leverage technology to maintain their potency and competitive edge in the market, offshore development has proven a reliable option for many. I attribute the rise in preference I've seen for offshore development to the ability to leverage top talent, speed up development, and utilize the latest technologies while minimizing development costs,” explains Thanh Pham, CEO of Saigon Technology, a top offshore software development company in Vietnam.

Let's look at how much a software developer makes in Eastern and Western Europe. To collect up-to-date annual salaries, we used Glassdoor data. Here, the average of the Software Engineer's annual salary is shown – you can see how strongly it differs from the US ones.

Country Annual Salary in the Capital Average Salary in Country

Warsaw, Poland

$30,774

$30,000

Kyiv, Ukraine

$33,950

$33,333

Bratislava, Slovakia

$28,281

$24,240

Ljubljana, Slovenia

$26,400

$26,725

Bucharest, Romania

$24,746

$17,232

Prague, Czech Republic

$36,396

$35,856

Moscow, Russia

$27,600

$24,800

Oslo, Norway

$68,390

$67,145

Copenhagen, Denmark

$81,600

$78,000

Berlin, Germany

$70,755

$68,405

Stockholm, Sweden

$61,992

$57,984

London, United Kingdom

$73,041

$61,067

Paris, France

$63,130

$49,527

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Salaries in Europe according to Glassdoor

And now let's see the average software developer base pay per year in North America, Canada, and Australia.

Country Annual Salary

Australia

$90,000

USA

$96,283

Canada

$57,996

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Roughly speaking, Eastern European developers cost 2-3 times less than the American or Australian ones, being no less professional. Thus, setting up an ODC in this region seems like a business-driven decision.

Scaling Up Your Company

As your company grows, you may find that you have too few resources to develop software. It is where the developers from your Offshore Development Center can come in to take up the new tasks.

This way, you won't have to give up new projects and will be able to increase your company's productivity and market potential.

developers will be constant. for your customers.

Offshore Development Center Model

There are two different approaches to ODC management by the most popular qualification. The level of involvement of the head office in the process is the main difference. That is, options are to have an intermediary to manage the ODC, or not.

classical The key distinction is the degree to which the head office is involved in branch management.

Offshore development team

The choice of model depends on things to consider for building an offshore development center.

The choice of model depends on things to consider for building an offshore development center. How involved do you want to be with the ODC? How many employees will you hire? What kind of results do you want to get?

Let's look at each of the types of offshore development centers separately and see which one is right for your business.

Contractor Model

Choosing this model implies that your project manager will transfer the responsibility for creating and maintaining the ODC to the contractor. Choosing this model implies that your project manager will transfer the responsibility for creating and maintaining the ODC to a contractor. The latter will serve as an intermediary, overseeing all tasks and reporting on the team's productivity to the main office.

It allows the company's management to focus on further ways to develop the business. In the meantime, the offshore development team will perform all the tasks to create the software. The intermediary will oversee all tasks and report on the team's productivity to the main office.

Who is suitable for this model?

Establishing a dedicated offshore development center with a contractor is a good idea for startups and small businesses that do not have enough funds and resources to create offshore development teams and need a reliable partner.

Client Model

This model does not involve a contractor. Your head office will directly manage the ODC team, set its strategy, tasks, and control their execution as if it was an internal development team in your company. In this case, the care of finding an office, infrastructure, and developers falls on you.

Who is suitable for this model?

It is a good solution for setting up an offshore development center without a contractor for an enterprise with sufficient internal resources. This way they can ensure the complete and timely input of data required for effective ODC operation.

There is, however, another approach to the offshore development center models. Let's take a closer look at it.

Trust Model

This development model is designed specifically for projects that need the highest level of security. If your software requires patents and proprietary laws, then this is the ideal model for your project.

Most of the offshore development centers ensure that all teams are exclusive to clients. The physical development location is also confidential. Team members sign an NDA. Due to a higher amount of legal work, the Trust model is quite expensive compared to other models.

Classic Model

Classic Model is the most popular model for software development, which offshore development centers use. A dedicated team is allocated under the direction of the project manager. The team members are selected to cover all the necessary technical and market knowledge, and skills to implement the project.

The team assigned to work on the project will always work closely with you to ensure that the final product meets requirements. This work system is beneficial for both parties, as it allows the team to understand the client's requirements to deliver a finished product. It is also beneficial for the client, as you can keep in touch with the team throughout all phases of development, making changes.

ODC vs. Outsourcing: What’s The Difference?

When your company lacks resources, you can set up an offshore development center or hire outsourced employees. What are the differences between these two approaches, and which is more suitable for you?

If you run a small business or a startup that does not yet have enough funding to open a new office, outsourcing employees is a great solution. But if you have been in the market for a long time and need additional labor resources, we recommend paying your attention to building an offshore development center.

Set up your own ODC if you want to scale your business, provide yourself with additional developer resources, and save significantly on the development process.

OA dedicated offshore development center will be a separate representative office or branch of your company in another country. In contrast, outsourcing is in fact a contractor interested in performing a defined amount of tasks for your company.

With an ODC, you get the opportunity to expand the workforce of your company and cut costs on developer fees.

Key outsourced services

Don't forget about your corporate culture and values as they play a growing role for employees. “Understanding the differences between project-based outsourcing and value-based offshoring is one thing, but understanding the steps to successful implementation is another. To facilitate the smooth onboarding of new engineers, a company must have a concrete vision. After all, how can you culturally align your new team if there's nothing concrete for them to look into?” underscores Emilien Coquard, CEO of The Scalers.

Another important argument is that an offshore development center provides services from another part of the world, while outsourcing provides you with the same services regardless of location.

Here is a table with the key pros and cons of each model:

Pros Cons

ODC

Strategic Approach – Plan your work months in advance.

Contractual Commitment – Sign a contract to hire employees permanently, as if they work for your company.

Talent Acquisition – Choose the best developers for your project.

Dedicated Workforce – Be sure that the development team will only work on your product.

Long Term Commitment – Think of employees as in-house developers

High Pricing – Keeping employees on staff is more expensive than hiring them for project work.

Outsourcing

Focus on Core Areas – Delegate only those tasks that are important to you at a given time.

Access to the Different Skills – Hire developers with specific skills.

Flexibility – Change the number of employees on the job.

Cost-Effective – Pay only when the work is done.

Lack of Control – You can't control the software development process.

Minimum Commitment – Project employees are only interested in fulfilling their obligations but not in the company's prospects.

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How To Set Up A Dedicated Offshore Development Center

How to set up an offshore development center? If you decide to offshore IT services and build a software development center from scratch, the process may include the following steps:

Choose Location and Center Model

Before you start organizing an offshore development center, you should decide in what country you want to hire developers, and which model to use.

Determine why and for what tasks you are creating an ODC. Thus, you can understand in which situations you should rely on additional engineering resources. In addition, at this stage, you may realize that you do not have enough new tasks, and it simply does not make sense to create an ODC. If there is still a need, move on to start an ODC.

Knowledge Transition

In this stage of ODC development, you need to make a list of requirements for this project. Remember that this center must properly model the customer's product development environment.

The knowledge transition process should contain your company's work standards and problem-solving approaches. Sign a business agreement and spell out the security aspect of the connection to avoid disclosure of development details.

Appoint Key Employees

Offshore development centers have features that make them look like branches of a company rather than independent companies. Therefore, it is not surprising that the center's structure is similar to that of the main office. As for employees, some key workers are indispensable. You should have a project manager who acts as a liaison between the organization and the members of the offshore development center.

Once you've appointed a manager, you need to find people for other roles: developers, designers, and software engineers. One of the benefits of using ODC is that it allows you to quickly scale up or down your team according to the current requirements of the project.

Identify the Legal Aspects of Launching the Center

In this step, you deal with the legal aspects of launching an ODC.

The tasks may include the following:

  • Hire a legal consultant to deal with the country's laws in which you will establish the center.
  • Officially register your company as a legal entity.
  • Take care of the infrastructure and provide your remote developers with the software to work productively.
  • Do not forget to read the tax regulations.
  • Finally, and most importantly, hire developers for your center and an administrative coordinator, who will monitor the convenience of work in the office.

As you can see, the process of creating your own offshore software development center is not an easy task. However, if you write down all the steps and keep track of what you have done, you will easily cope with it. The main thing is to keep in mind the legal regulations not to incur serious financial losses.

Interaction With the Head Office

The physical boundaries between the head office and the ODC should not interfere with productive work. The head of the company and the ODC manager have to work out a certain algorithm by which the teams can interact with each other.

This process should include setting up special equipment or software for remote work. For example, you can use video conferencing apps, task managers, and other cloud services. It will make it much easier to hold meetings with the teams and stay on the same page.

Agree on which trackers the employees will mark the completed tasks. It can be Trello, Jira, Redmine, or any other app you find useful. The main thing is that all the teams work within one tool. It is also important to choose communication channels: for instance, emails for inquiries and discussions of strategy, an instant messenger for real-time exchange of updates or urgent questions. Keep in mind that it is also crucial to ensure data security.

Offshore Development Center Risks and Challenges

No matter how thoughtful the Offshore Development Center model is, it has its risks and challenges. You have to be prepared for that if you choose this type of development. Forewarned is forearmed, so let's look at what you might face.

Data Security

You should work carefully on the issue of data security. A remote office is a potential cause of data leakage. The solution to this problem might be introducing special security policies, and, for instance, using VPNs on your employees' computers. If they log on to the network with secure settings, you can greatly reduce the risk of leaking information about your product development.

Cultural differences

People from different countries can communicate with each other in different ways, have various perceptions of hierarchy, urgency, workload, etc. Don't forget to take cultural differences into account when creating your ODC.

Legal Challenges

If you're hiring a team from another country or opening your center abroad, then it's worth researching the legal field. If you don't have time to do so, hire a professional team. Failure to comply with the law can cause reputational, financial damage and the loss of your business.

Interaction Between Teams

An offshore team and an in-house team are different approaches to hiring developers. Adhere to a set time frame for the working day. Set up communication channels through which employees can communicate with you and with each other.

Tracking Work and Productivity

For some developers, doing quality work is a top priority. But that's not always the case. You'll face the challenge of making sure every developer is using their working hours effectively.

Yes, there are a lot of risks. But if you fully embrace the ODC model and set it up properly, you can avoid most challenges and problems. Remember that this model is likely to continue to grow in popularity. So it's worth thinking about implementing it now.

I'm In, Where Can I Hire a Reliable Dedicated Team?

To start an ODC, you need to analyze which tasks you will delegate to new developers. Don't forget about legal subtleties and choosing a project manager who will ensure the developers' comfort and will be the link between the client and the team. It is not an easy task, but if you make a clear list of requirements for ODC, then the launch will be very easy and will soon bring positive results.

To get your business moving in the right direction, turn to the experts. When choosing a company, look for successful cases, experience, and technologies used. Softermii can provide a dedicated development team with extensive experience to fill any skill gaps that affect your development projects.

We will expand your internal knowledge and experience with a cross-functional team to effectively deliver complex technology solutions to the market. It is a great way to create an ODC to scale your project capabilities.

If you are interested in hiring offshore developers, just contact us to hire only professional remote software developers.

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