What Is ODC — Offshore Software Development Center?

Offshore development is a profitable and convenient form of cooperation that allows you to reduce costs and receive the services of experienced engineers at the same time. Large companies such as Google or Samsung open independent offshore development centers to get new ideas and solutions.

In this article, we will discuss ODCs, their benefits to businesses, their models, and how to open your own center.

What is ODC – Offshore Software Development Center?

An Offshore Software Development Center (ODC) is a dedicated office in a foreign country that houses a complete team of software engineers and specialists, equipped with the necessary resources for comprehensive development activities. The projected size of the Offshore Software Development Market is expected to reach $283,457.5 Million by 2030, with a compound annual growth rate (CAGR) of 10.13% from 2022 to 2030. The primary driver behind the outsourcing of software development services is the significant disparity in IT team salaries and a larger talent pool. For instance, the typical salary for a senior developer in the United States ranges from $106 to $163 per hour, whereas a developer of similar quality in Ukraine might command $24 to $45 per hour. For example, giants such as Google and Samsung have ODCs in Eastern European countries.

ODC Model VS Outsourcing: How Do They Differ?

Both offshore development centers (ODC) and outsourcing provide access to a large talent pool at lower rates. However, they have some critical differences.

ODC Model VS Nearshore Software Development Center: The Main Distinctions

Nearshore software outsourcing and ODC are quite similar models of cooperation, with the exception of only a few points.

Nearshore development means transferring specific tasks or projects to companies from neighboring countries or even regions. ODC, in turn, is about creating a full-fledged branch of your company in a country where it is profitable, and it is not necessarily near you.

The other major differences related to management and development follow from the previous one. ODC involves the creation of a business infrastructure, while nearshoring is transferring a task to a contractor with a ready-made team and infrastructure that can be used for third-party projects.

Software Development Center vs. In-House Development Team

In both cases, the developers are dedicated to your project. They have the opportunity to develop within your company, which is a big advantage. However, the in-house option doesn’t provide such benefits as a reduction in operating costs and wide opportunities for finding unique solutions. There are other differences as well.

When to Consider Opening an ODC?

One of the main reasons why companies open ODC is the need to reduce their operating costs due to the difference in high-level specialists’ rates, as well as savings on office rent, technical equipment, etc. But there are other cases when this approach can be beneficial.

• The need to scale the development team or strengthen it with specialists of a narrow profile with particular tech expertise. According to Forbes, 36% of HR leaders note a shortage of resources for attracting top talent, and retaining newcomers within the company proves even more challenging. Statistics reveal that 30% of new hires depart within 90 days.
• The need to enter a certain market, which is much easier, having at your disposal specialists who are familiar with local business processes and pitfalls.
• The need to transfer development routines into capable hands and focus on core business goals.
• Stagnation in the scaling and development of the project, the need for a new vision.

In some cases, opening such a center can be a measure to increase the security of the development because the ODCs work within the framework of a non-disclosure agreement and complex technical security measures.

Key ODC Models

Let’s take a look at the main ODC models

• Managed ODC. In this case, the provider from a remote location hires a team of specialists under project specifics and the client’s needs. The provider takes over the administrative and managerial functions.
• BOT, i.e., Build-Operate-Transfer. In this case, the company hires a development services provider to perform all the tasks of opening an offshore center, including creating a business process management infrastructure.

Each model may have individual limitations and requirements within a specific cooperation or employment agreement.

Benefits of Setting Up Offshore Development Office

Among the main advantages of ODC, the following are worth special attention:

• Wide opportunities for rapid scaling and staff expansion.
• Access to extensive domain expertise.
• Reduction of operating and hiring costs. As reported by Forbes, the cost of replacing an employee for a company amounts to 33% of the employee’s salary. For instance, if the salary were $50,000, the company would incur $16,500 to replace the employee. The expenses related to turnover encompass diminished productivity, along with the costs linked to recruiting, hiring, and onboarding.
• The ability to create a solid infrastructure at low costs.

It is also worth noting that this approach allows you to optimize the development process and find new solutions in cases where the in-house team is stuck and needs a fresh view.

Risks Connected With Opening ODC

Opening an offshore development center has its own risks that should not be ignored.

• Wrong location and cultural differences. Many locations offer a cheap developer rate, but employees may not speak English and may not share your corporate culture, which is critical for remote collaboration.
• Legal difficulties. They may be related to registration and tax issues. Therefore, it is worth paying attention to countries like Ukraine, where the system is loyal to foreign investors.
• Security risks. This is always a painful question because it concerns sensitive corporate data. Everything is resolved by a strong agreement on cooperation and the use of complex security measures.

How to Open Offshore Software Development Center?

The opening process is complicated, but it goes more smoothly if you follow this step-by-step system:

1. Locations. Let it be a country with favorable tax and economic conditions, a good technical education, and sufficient English proficiency.
2. Vendor. Choose companies with extensive experience in offshore cooperation and an extensive portfolio. Also, use demo calls to get to know them better.
3. ODC model. It all depends on your project needs. An experienced vendor will help you with this.
4. Hiring. Choose specialists who will share your business values and have the necessary expertise. You can contact a specialized recruitment agency or rely on a vendor.

The next steps depend on the ODC model. Office rental, onboarding, and other aspects can be handled by the vendor or yourself.

Useful Tips to Set Up and Manage Offshore Development Center

Here are some helpful tips to make managing an offshore center easier.

First, find a reliable vendor interested in your business success. Stay in touch with the team and establish a comfortable communication system. Regular reports and timelines will help you stay on top of progress and improve interaction with developers.

Second, define the center’s success metrics for yourself. These should be not only financial parameters but also staff performance evaluation, achievements, and customer feedback.

In addition, an intermediary as a project manager plays a major role in establishing work processes. So find someone to control workflow and maintain regular reporting for you.

Top Countries for Opening ODC in 2024

The choice of location depends on the level of technical education, competence, and rate of developers. In recent years, the best option for opening an ODC was Eastern Europe, namely Poland, Ukraine, and Romania. They are suitable for all parameters, including a loyal taxation system, the closeness of time zones, and a high English knowledge level.

Poland offers 250,000 experienced developers and a relatively cheap cost of living. The number of developers in Romania is slightly less, namely about 140,000, but this country is known for the rapid pace of development of the industry.

As of 2023, Ukraine has about 242,000 experienced specialists and the most dynamic tech market. Such giants as Google, Magento, Samsung, etc., have experience centers here and continue to invest in their development, despite the military actions.

Why Customers Choose Ukraine

Ukraine has a vast talent pool, including specialists of a narrow profile. The tech industry here is developing fast, and educational institutions conclude agreements with IT companies and train new specialists specifically for them.

At the same time, the country’s tax system is open and loyal to foreign investors. The cost of renting offices and accommodation is relatively small. That is why opening the ОDС here is quite a profitable solution.

Conclusion

Offshore development center is one of the development trend and a great option for companies that need fast and inexpensive scaling with lower operating costs. It allows you to open a full-fledged company branch and hire highly qualified specialists at a much lower price.

Leobit is a Ukrainian company with extensive experience servicing ODC and providing full-cycle development services. We’ll be happy to advise you on this topic and discuss cooperation options, so feel free to contact us.