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Top 10 things to consider when starting an Offshore Development Center

Posted by: Mariya Parackal | On: 20th Sep, 2019 | New Business

Software development is getting more and more challenging. Virtually everyone needs websites or applications developed but hardly anyone knows how to do this work themselves. While many people do choose to onboard their own developers, many outsource this work to offshore development centers.

Offshore development centers, or ODCs, operate as branches of a company that are located in a different country and provide a more limited and more specialized range of services. Usually, those services are software development, financial services, and customer service.

Benefits include greater access to more specialized workers, lower cost, decreased infrastructure costs and more. The primary drawback is that starting an offshore development center is something easier said than done.

That doesn’t mean that it’s beyond your reach, it just means that you need to put some careful thought into it before you get started. Here, we’ll look at the top 10 things to consider when starting an offshore development center.

offshore development center
  1. Location Location Location

The first thing to think about is where your offshore development center should be located. Most people think of places like India but that’s only one potential location.

Your offshore development center should be located in a place where there is more technical specialization than there is demand. These are usually countries that have internationally known science and technology centers but that have largely manufacturing or agrarian economies. These countries often have populations large enough to more than satisfy the need for things like labor, meaning that those who have higher education in specialized fields like software development often face stiff competition if they want a job-based in their home country.

Ideally, your offshore development center will also be located in a country with a local currency that is less valuable than your own. This is what allows people in countries like India to work for more competitive rates than people in countries like North America or the European Union.

Some people believe that offshore development centers are only profitable because they don’t pay a livable wage. The truth is that most offshore development centers capitalize on the fact that the cost of living isn’t the same in every country. It sounds cruel until you realize that offshore development centers actually give people in other countries the opportunity to earn more money than they would otherwise be able to while working for domestic employers.

The location isn’t only important in terms of cost and specialization. It is also important because, ideally, some of the operating hours of your main company and the offshore development center will be the same. This allows the two groups to iron out problems more efficiently than they could if the hours were completely different.

  1. The Law of the Land

Once you have identified the country that you are interested in establishing an offshore development center in, you should dive into the laws that that country has relating to international commerce.

Most countries that you think of when you think of offshore development are actually very friendly to the idea of offshore development centers. As mentioned above, these centers give incentives for citizens of those countries to get high-paying jobs in the country rather than looking for specialized work abroad. Offshore developers may be paid by an entity outside of their country but they spend that money where they live, which makes their governments happy. That doesn’t mean that those governments don’t have laws regarding things like what kinds of currencies workers can be paid in, not to mention different tax brackets.

  1. Managing the ODC

The next thing that you will want to think about is how the offshore development center will be run.

Naturally, the offshore development center will function as, more or less, a remote branch of your existing business. However, traveling back and forth between the main office in New York and a satellite branch in Chicago is a lot different from traveling back and forth between the main office in New York and an offshore development center in India, South Korea, or the Ukraine. This is an option that you can take if you have the money but remember that that is going to be eating into the profits associated with starting an offshore development center in the first place.

A more practical option is to have someone on the ground in the offshore country who works closely with you to run the offshore development center. This individual may be someone that you work with now or someone that you know from professional networking. They don’t need to have experience managing an offshore development center but they should have some kind of management experience.

  1. Recruitment and Hiring
recruitment

Of course, the manager of your offshore development center is only one of the positions that you will need to fill. You’ll need the actual developers, not to mention people in positions like accounting and human resources. You and your manager will need to identify a way to recruit these other positions as well as how to vet them.

5. Paying the Overhead

Depending on how your offshore development center is modeled, you may also be looking at some infrastructure costs similar to those that you face at home, such as equipment and space. These should factor into your figures when you begin to look at cost analysis.

6. Working with an Existing Team

If all of this sounds like a lot to you, there is one option that gets around a lot of this start-up work. That is working with a dedicated outsourced team. Many of these teams work on a client basis moving from one client to the next. However, if you dominate a team’s time and have them convinced that you can keep them busy indefinitely, you may be able to effectively absorb an existing outsourcing group.

Download whitepaper on Outsourcing due diligence

This will give you less control over who leads and makes up the team but it will also save you a lot of the hassle associated with starting a center yourself, which is primarily what the rest of this article is about.

7. Cost Analysis

Cost analysis is an important step because it helps you to understand how much money you can afford to put into your offshore development center at the moment. Your offshore development center will definitely save you money in the long-run. However, given the start-up costs associated with it, it may be a while before you start to see those returns. As a result, there is probably only so much money you can afford to invest in your offshore development center right now. You can always expand later but if you put in more than you can afford to at the start, the project will hurt instead of help you.

8. Services

This is a good stage in the process to reconsider your vision for what services the offshore development center will take care of. Development, obviously, but many people also move their customer service department to their offshore development center. If you have enough developers that you can have them wear both hats, that’s fine. However, if moving your customer service department – or starting a dedicated customer service department – means hiring more people at your offshore development center, you may want to rethink that for the time being.

9. Information Infrastructure

You’ll also want to think about how you want files to be shared between your main office and the offshore development center. Having an offshore development center means that a lot of potentially sensitive material doesn’t need to be stored at your main office but it also means that you’ll need a way to get that material back and forth when necessary. This means you’ll need to think about secure online storage and communication channels.

10. Communicating the Change

communication

Once you have everything figured out, you should start to think about how you will communicate this change to your team and your customers. After all, your team will now be working with the offshore development center and if the offshore development center handles things like customer service, all of the clients and customers who use your services and products are going to be impacted by the change as well and as such, they should be notified.

This can be difficult because many people believe that offshore customer service teams provide worse service. As a result, it can be helpful to stress the positives. Tell them that the move will save you money that you can use to improve the goods and services that you provide them. You can also assure them that the move gives you access to more specialized developers which will also enhance their experience. 

Starting your own offshore development center is a huge move. It takes a lot of time, energy, and capital. However, it gives you unparalleled control over your offshore development team. Further, it is guaranteed to save you money in the long run compared to starting a domestic development center or even expanding the size of your home team.

Using this article as a jumping-off point, you should be able to find plenty of resources to make your experience with starting an offshore development center a fruitful and rewarding project.

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