In 2020, the IT industry continues getting more and more globalized. Having quit outsourcing software development, lots of tech companies now feel inclined towards offshore development centers (ODC). Nowadays, this model is regarded as an upgraded solution for IT business, as it entails more benefits than traditional outsourcing. In this article, we’ll look at offshore development from different perspectives and describe the main steps of building an offshore development center.
What is an Offshore Development Center?
An offshore development center, also known as ODC, is a development office with a team of software engineers located in an offshoring country. In essence, this is a company’s branch in another country with a vast pool of talents and lower costs. The ODC is an efficient business model for both large IT product companies and startups. It helps to establish the presence of a company in another country, better access to IT talents, and save at the same time. For example, big companies such as Grammarly, Samsung, and Wargaming already use this model and have their offshore software development offices in Kyiv, Ukraine.
How an Offshore Development Center Functions
An ODC is a representative unit of a tech company. It means that the offshore development team works under the same brand as the head office and follows common corporate policies, e.g. offshore IT specialists perform core tasks and bring the same value to the business as any other in-house team. Typically, the ODC team is composed of diverse specialists, including software engineers, QA engineers, back-end and front-end developers, web and UI/UX designers, technical writers, and team leads. It’s up to the head office to decide on the roles and structure of the offshore team.
It is important to mention that operational staff is no longer necessary in ODCs. This is because all other functions like accounting, HR payroll, legal support, and recruitment can be delegated to a local service provider. The local vendor would also consult you on the specifics of doing business offshore and help with legal compliance.
ODC vs Outsourcing
Offshore development centers are often contrasted to IT outsourcing. These are two polar business models used by tech companies when moving offshore. Some of the key differences are summarized below.
Passionate software engineers tend to work for product companies. Unlike outsourcing, ODCs give developers the opportunity to become part of the IT product. This attracts talented IT specialists with a product mindset who are ready to bring more commitment to their work.
Code outsourcing is cost-efficient provided that your project isn’t going to scale. For an extensive piece of work having your own development center can be a game changer. ODCs require small up-front investment, but in the long run they show a high ROI (return on investments). This is not mentioning the transparency of pricing when working with your service partner.
Outsourced development teams are supervised by project managers from your service provider. Consequently, as a customer you don’t have any direct influence on the team. As a rule, an outsourcing firm retains its rights to shuffle team members and assign them to different projects. Unlike this, with an offshore development center you are the one and only employer for the team.
Professional software engineers are eager to work on one product since they are not interested in “spreading themselves out” through different projects with the similar scope of work. Talented developers see many career prospects in a product company. They realize the opportunity to enhance tech competence and exchange their experience with foreign tech-savvy specialists.
ODC vs Other Engagement Models
The path from the first stage to the most upgraded level lies through dedicated teams and build-operate-transfer (BOT) models.
Project outsourcing implies passing some part of software development to an outsourcing company. Usually this is a short-term relation between an IT product company and service provider. Project outsourcing is a reasonable solution for IT companies that want to test the waters first.
Dedicated team. When a product company feels reassured of quality and economy of doing business in the chosen offshoring country, it hires a dedicated team of developers. Provided by outstaffing agencies, this service enables you to have direct access to engineers for a limited period of time.
Build-operate-transfer (BOT) is a more profound solution similar to the ODC model. It suggests contracting with a local vendor who will build, operate and then transfer a software development center to you. On its final stage, however, BOT has many risks regarding knowledge and people transfer.
Offshore development center (ODC) is the most advanced model which leaves much room for independence. You can upgrade your business from any stage to open your own offshore development office. The biggest bottleneck is operational management, but with a reliable partner you can get rid of it and focus on your IT product instead.
How to Set Up Your Own ODC
Here’s your guideline how to open an offshore development center. Follow these steps to create a win-win offshore strategy.
Choose a location
There are many outsourcing destinations in Eastern Europe and Asia which attract IT companies for economic reasons. Nevertheless, apart from lower operational and labor costs, businesses should also pay attention to technical skills and culture specifics of the nations. This is vital for remote team management and efficient communication to avoid culture gaps or work ethic issues.
Find a trusted partner
Every new step of building an ODC requires some deep research. It’s necessary to estimate risks and create a win-win offshoring strategy. In this case, you’ll need solid advice from local firms to structure your business and comply with the local legislation. That’s why a trusted partner is key to help you navigate through the local environment.
When you finally partner up with a service provider, lay the first stone of the recruitment process. At this point, researchers will start analyzing the current labor market and select the first eligible candidates.
Find an office
While recruiters are picking up IT talents for your company, start the searches of an office space where the future team will work. Decide on the location, parking lots, security system, office planning, seats, equipment etc. Professional real estate managers will suggest several picturesque locations according to your needs.
Get legal support
To sign a lease contract, you’ll need to consult lawyers. They will make sure you get the best terms of agreement. This process, however, requires a deep understanding of the national law and profound negotiation skills.
To equip the new office, you need furniture and proper IT infrastructure. It includes computers, software, security system, servers, inner correspondence service – everything to set up the offshore development center.
This is the stage when you’re ready to send job offers. First employees start their work and the ODC is finally on! Additionally, it involves the onboarding of newcomers which is very often followed by on-site meetings in the head office.
Organize HR payroll
Accounting and HR payroll are important parts of operational management to support the functioning of your new offshore development center. Keep in mind that you need a person responsible for salary payments, money transfers between the ODC and its head office, as well as health insurance and leaves.
Mistakes in Setting Up Your Own ODC
To set up your own ODC, one needs to take into account various aspects. In order to make your experience smoother, we suggest avoiding these key mistakes when launching the development office offshore:
#1. Involve several recruitment agencies
To speed up the recruitment process, tech companies resort to hiring several agencies at once. However, this is a failing strategy because candidates only get spammed with one and the same interview invitation. It’ll lead to poor results and spoil your image as an employer.
#2. Ignore employer branding
The best way to really accelerate recruitment is to start employer branding. If you promote your company as a nice place to work at, it’ll definitely attract more talents. The key point is to understand that offshoring employer brand campaigns must be tailored to the targeted IT community.
#3. Ignore office location details
Huge working area or a fascinating panorama shouldn’t throw dust in your eyes. There are some vital things that are often left unnoticed before the deal, e.g. soundproof, sunlight, air conditioning, 24/7 access. Work closely with a real estate manager to check all important details.
#4. Unadaptable company policies
Your corporate HR policies may work well for in-house teams, but offshore developers are located in another country with their own national holidays and labor law. For this reason, be adaptable and discuss the vacation & day-off opportunities with the offshoring team individually.
#5. No IP rights agreement
Although you hire a trustworthy team of developers, a non-disclosure agreement is signed by default. Companies that produce intellectual property must keep an eye on their legal rights from the very beginning. Consult IT lawyers to prepare a comprehensive agreement to prevent the leakage of your confidential information.
#6. Direct employment
The type of employment contract influences other legal procedures, including opening visas. When a developer is your contractor from another country and receives income directly from the head office, he/she will hardly get a business or travel visa to America because of the tight regulations in the US embassy.
There are plenty of offshoring destinations in the world. The kernel of rising IT nations embraces Asia and Eastern Europe. The most developed countries in these regions are India, China, Romania, Poland, and Ukraine.
Ukraine is regarded as a modern European country with nearly 200,000 IT specialists. Here, software engineers are well-versed in different fields of technology like e-commerce, artificial intelligence, gaming, healthcare, cloud services etc. They are also characterized by good entrepreneurial skills and a deep understanding of work ethic. Ukrainian software engineers are proactive and demonstrate the desire to learn.
Alcor as Your Trusted Partner
An offshore development center is a perfect solution for companies that desire to step out of outsourcing relations. As an alternative to the traditional outsourcing, an ODC gives you freedom and security. Build your own offshore development office with Alcor and enjoy the benefits of working with us.
A la carte services. At Alcor, we help you structure your IT business according to Ukrainian law and make sure it complies with your national legislation. Our team of recruiters will hire software developers to your team, while accountants manage HR payroll. With our seasoned team of recruiters and researchers, you’ll get real results from the first month of our partnership.
If we fail to hire 5 developers within one month, we guarantee to hire them free of charge.
All of this is followed by further operational management support, including additional services like business travel support, employer branding, stock option planning, and work permits for foreigners.
Proven expertise in the IT field. We are the service providing company that works exclusively with IT product companies from different countries. Our team of experts works closely with software developers and their top management to meet the company’s needs in the best way.
English speaking professionals. Alcor is an English friendly team with extensive international work experience.
Strong government relations. We always make sure our clients stay updated with Ukrainian law and policies. Dmitry Ovcharenko, CEO Alcor and Vice President for legal and financial matters at the IT UKRAINE ASSOCIATION is actively involved in meetings with government.
Let’s discuss the offshoring opportunity for your IT company in Ukraine! Leave us a message at email@example.com to let us help you grow and shine.