Offshore Software Development Center (ODC) from A to Z: Maybe you’re missing this

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It’s been almost two years since the global outbreak of the Covid-19 Pandemic, and the drastic change in how businesses work has never been that obvious. Since the pandemic taking its toll over the world, we have witnessed the screeching halt of the world’s finance and economy. Even the most prominent players in the market are doing everything they can to cut down costs.  As in the IT industry, the most exploitable approach is perhaps Offshore Software Development Center.

The term “Offshore Development Center” (or we call ODC) may not be that familiar to some businesses. However, this has been adopted in multiple fields of the IT industry and gaining its reputation as a cost-effective, approachable way of IT Outsourcing.

1. What is Offshore Software Development Center?

Offshore Development Center, short for ODC, is a form of IT Outsourcing that entails the creation of an off-site team to work on a software development project. This off-site team will be specifically located in another country other than the country you’re currently working in. The three main points of an ODC are:

  • Scalability
  • Dedication
  • Integration

For an ODC, the resources included will be the human resources and infrastructure. Although the name says for itself the purpose of this off-site team, which is software development, the ODC can also include administrative and supporting staff, all depending on your requests.

What is Offshore Software Development Center

Since it is a “Center”, an ODC is often for large-scale and long-term operations. How you manage it lies upon your resources on a management team. It could be a single project manager working on-site covering all the monitoring, reports and assessment, or it could be a team of tech engineers from your side.

An Offshore Development Center often consists of more than ten people. They can either work on the same project or on different projects. This varies on how much you want this ODC to cover the information technology aspect in your operation.

The first and foremost reason for the vast adoption of ODC is the cost-saving effect. According to one research, an Offshore Development Center can save up to 60% of the expense you could’ve spent on software development. To be more specific, the cost for an in-house team of developers is always higher than that for an Offshore Development Center. For example, besides the apparent reduction in labor cost for an equally talented team of developers due to geographical pricing, a business would have to pay more for infrastructure cost, office lease, management cost, etc. These seemingly trivial costs can add up to an enormous number that you would never want to deal with.

Another critical factor for an Offshore Development Center is the creation of a dedicated team working on your projects. Depending on your specific requests, this team can work on one or multiple projects. The personnel in this team will only work with you and you only. For this reason, you can consider this ODC an off-site extension of your business, only that they’re working in another country.

2. Offshore Software Development Center vs. IT Outsourcing: Aren’t they the same?

Some might mistake IT Outsourcing with Offshore Development Center. Actually, Offshore Development Center is just another form of IT Outsourcing.

While IT Outsourcing pays no regard to location, Offshore Development Center refers explicitly to the offshore operation of the projects.

The real question lies in “What does location have anything to do with IT Outsourcing?”. Offshoring, or you can call it international outsourcing, is the optimal solution for cost reduction, especially in the IT industry.
Thanks to geographical pricing, the gap between labor costs in some countries is higher than in some other countries. Exploiting this trait, many enterprises can now hire talents with the same capabilities at a much lower expense when applying ODC. One extra task for enterprises using this model is to have a project manager supervise the project.

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Offshore Software Development Center vs IT Outsourcing

An ODC can function as a branch or an IT department of one business, dealing with every technical matter of that business.

For an IT Outsourcing project, its core should be the output, while how the outsourcing team produces that output is just a minor factor. The client has no or little control over the project specifics.

In contrast, since the ODC acts as a branch of the business, it should follow the company’s guidelines and code of conduct.

For anyone who doesn’t know which one is suitable for your business purpose, you can consider this:

  • IT Outsourcing focuses on the output of the project. Therefore, the cost is a minor factor. As long as the requirements are met, you have no problems in the limited control of you in the team. The personnel of the IT Outsourcing team can change over time. For each IT Outsourcing team, they usually just work on one particular project. For another project, another team or contract is set up.
  • Offshore Development Center’s core priority is cost reduction. Plus, the management within the project is stricter, with the client hiring extra personnel solely for management and supervision. ODC can work on multiple projects at the same time.

3. What can Offshore Software Development Center bring to your business?

Yes, IT Outsourcing and Offshore Software Development Center are two different models, and yes, IT Outsourcing is a more popular choice for businesses. However, Offshore Development does hold some beneficial traits that can contribute to your business:

  • Cost reduction
  • Close-up management and supervision
  • Access to a large talent pool
  • Market expansion
  • Diverse team of technical engineers
  • Continuous maintenance
  • Alignment with client’s objectives

Cost reduction with Offshore Software Development Center

The main reason why one businesses consider Offshore Development Center is the cost reduction it can offer. As mentioned before, the labor cost and other infrastructure costs vary from country to country. This is geographical pricing. With this glaring gap, many enterprises see the opportunity in which they can have a team with the same capabilities and proficiencies at a much lower cost.

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Cost Reduction – Offshore Software Development Center

With the cost barrier lowered, enterprises are now leaning towards the idea of offshore development center more and more. Once the need is there, they now do not simply want to apply ODC at some random country. Before going all-in for anything, a thorough analysis would be carried out to calculate the pros and cons of one country. The cost is the main factor that will be specifically addressed in this analysis. It includes the initial cost to set up an ODC and the cost for paper preparation, legal actions, and other trivial tasks.

Although the process of setting up an Offshore Development Center might be tricky and quite challenging, the benefits and the advantages it can bring to the table are undeniable. In addition, the costs saved thanks to this can be of great advantage to many enterprises since it helps them focus their financial resources on other critical operations.

Close-up management and supervision

The fear of loose management and inadequate supervision might be one daunting factor for businesses wanting to apply Offshore Software Development Center. However, the reality proved the other way round.

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Close Management – Offshore Development Center

In the past, management in Offshore Development Center has a bad reputation of being inadequate and inefficient. However, gaining experience from the failed projects, the management method of Offshore Development Center now works in a functional way, including the stringent procedures and close step-by-step supervision within each project team.

And don’t forget about the increasing number of QA & QC staff working in an ODC. For example, each ODC project will be assigned with at least one QA and 2 QC employees to keep track of the work. In addition, Project Manager will be in charge of the whole operations through daily reports and constant updates.

Access to a large talent pool

Besides the leading factor of reduced costs, Offshore Development also holds another great benefit of a large talent pool. When it comes to building the traditional in-house team, the recruitment cost goes through the roof with many trivial spendings. Candidates don’t appear out of thin air. Corporations have to spend quite a fortune on ads, training efforts, orientations, etc. And to be honest, this is a very tiring process. Instead of rushing through this, you can choose to both reduce cost and get access to a large talent pool at the same time.

It’s like an unwritten rule that every ODC puts great emphasis on their talents and professional training. The high availability of fully proficient IT staff and IT experts is the “key selling point” for an ODC to survive in this already very competitive market.

This is the reason why companies providing ODC services have to work through an effective recruitment process and an array of training programs to sharpen IT staff’s skills.

Market expansion

Offshore Software Development Center can work out in different engagement models. For example, it could either be a regular Offshore Development Center with operations based on the client’s contract and requirements, and once the client no longer wants to continue, the contract is due.

Or it could work under the form of a Build – Operate – Transfer engagement model. With this model, it would be the most suitable for large clients who want to enter the hosting country’s market where the ODC is located in. The initial development is solely for IT purposes. Still, through time, the client will assess how the ODC performs and then decide on whether they should expand the business.

With the working machine (even just within technical operations), the client can now form a new branch – a subsidiary for market expansion.

Diverse team of technical engineers

When talking about diversity, we didn’t mean culture or personality. In fact, we want to focus on how diverse the skill sets of our staff are.
Since the offshore development center operates according to the client’s requirements, we have to constantly adapt to the market’s demand. With this “philosophy in mind, the ODC tries to bring as much diversity to the project as possible.

With this feature, client can rest assured of the technical skills with the service of Offshore Development Center.

Continuous maintenance

An ODC strictly follows the requirements and guidance from the headquarters. Therefore, the whole work process is under careful operation with checklist and to-do tasks arranged in a systematic and synchronous order. Plus, the ODC also put more and more focus on how the maintenance is carried out.

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Continuous Maintenance – Offshore Software Development Center

The trend now is “continuous maintenance”, meaning that maintenance is performed on a weekly, or even daily basis. First, each employees’ work is logged onto the management file, clearly stating what has been done. Then, the QC, QA and PM will take turns to check and verify their work. Finally, if anything goes wrong, the one held responsible will fix the problems. This is the process applied widely in the market and has proven its effectiveness.

During the entire cycle of the project, Offshore Software Development Center uses every resource they have to complete their tasks. But, even in that case, there might be some time that the results don’t live up to your expectations. This is another reason for the continuous maintenance of your project. With instant maintenance after each step, the time-to-fix and time-to-market are reduced to its minimum.

Alignment with client’s objectives

For an ODC to function properly, you cannot leave out the position of Business Analysts. With these personnel, the mutual understanding between the ODC and client is more clearly clarified. Transparent requirements, along with advice from an expert in business development, can help you a great deal in finding the best work model to with.

With mutual understanding, ODC can now align with the client’s objectives and make any more adjustments if needed.

4. Domains for ODC: electronics, automotive & healthcare

Offshore Development Center is being applied throughout the world. Information Technology is the universal requirement for any business to adapt to the current preferences of society. We’re used to the pervading use of technology in entertainment and utilities, but the market is much bigger than that. Instead of the direct interaction with technology through apps and social media platforms, we now can see the increasing use of technology in multiple industrial and service sectors. The most obvious domains can be counted as:

  • Electronics
  • Automotive
  • Healthcare

Electronics and Embedded Software

The “Smart” concept is more popular than ever, with embedded software implementation on every electronic device manufactured. For one electronic device, the modern world’s consumers not only care about the core functions of the device but also have a preference for the “high-tech” feature of the device. For example, an electronic fan is not enough. This fan has to obtain the “smart” feature and be a part of the manufacturer’s ecosystem. We have seen this in the case of Xiaomi. This new player in the technology marketplace of China has manifested the favor of consumers when it comes to electronic devices through its success with Mi home – a new ecosystem of home electronic devices.

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Electronics & Embedded Software – Offshore Software Development Center

Through this example, we can see the undeniable growth of IT in electronics manufacturing field. With a large number of devices to put on the market every year, not to mention the updates and upgrades of the embedded software, the demand for electronics’ embedded software is higher than ever.

On the contrary, the supply of infrastructure and especially human resources within one country for this growth is still very limited. Hence, the electronics manufacturers have to come for IT Outsourcing, or even Offshore Development Center to seek help.

Instead of simple IT Outsourcing, manufacturers often go for Offshore Development Center for better security.

Automotive

It is almost like a tradition for the automotive industry to outsource its production (with an outsourcing rate of 80%), and the information technology aspect is no exception.

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Automotive – Offshore Development Center

The widespread usage of digital sources and appliances has influenced how automakers wish to update current models. With customer-centricity, anything that benefits their consumers is designed to apply in the vehicles, such as automated automobiles, AI systems in customer service, and virtual assistants, the manufacturers, the adoption of an ODC can improve the security of the project, which is now bound the legal agreements.

Healthcare

From 2020 to 2027, IT Outsourcing in Healthcare and Medical is expected to grow at a CAGR of 11%. The rate for the rise of Offshore Software Development Center is approximately the same.

With the pandemic taking its toll over the world and the outburst of many other diseases, the medical and healthcare system needs more than what they have now to provide the best services.

Besides the clinical demands for each doctor and health worker, the world needs utilities and other technical advances to deliver conveniences to the health workers and the patients.

Since the technical system often requires highly competent staff, the demand for this is increasing. However, their core business development was never the technology. It is the overall experience of one customer and the treatment process that matter to them. The point is, for the best services, IT is indispensable.

For this reason, healthcare is another eminent domain for IT Outsourcing, especially Offshore Development to grow on.

5. Three keys to launch an Offshore Software Development Center for your business

Got Offshore Development Center in mind? This is just the first step. The success of one ODC is not all painted in pink. In fact, the world’s market has witnessed many failed cases, all of which lack the consideration of the following:

  • The country in which you want to set up the ODC
  • The team structure suitable for your project and management style
  • Pricing model for your project

The country in which you want to set up the ODC

With a resourceful labor force, not to mention the much lower labor cost compared to other parts of the world, Asia is the favorite destination for IT Outsourcing, and Offshore Development Center is not an exception.

Not only renowned for the cost, the skills, competencies and proficiencies of IT staff in Asian countries also gained its reputation for being top of the world.

Thanks to the emphasis on Information Technology training that governments in Asian countries put in many years ago, the education and training system for technical knowledge is well-developed. Moreover, the practical work on the real-life project also helps undergraduates strengthen their skills and programming languages.

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Choose a country for your ODC

The top destination for IT Outsourcing or Offshore Development Center used to be in Eastern Asia, with China, Japan and Korea reign the most popular ones.

However, in recent years, the labor cost in these countries has increased to the point that they’re no longer the favored destinations for Offshore Development Center.

On the other hand, Southern Asia and South-East Asia countries’ Offshore Development Center service is developing at a staggering speed.

Standing out in these countries, Vietnam is now the emerging destination for IT Outsourcing and Offshore Development Center.

The labor cost in Vietnam is at least 15% lower than those of Thailand, Singapore, but the work quality and technical skills are basically the same.

The legislation system of Vietnam with Offshore Development Center is also quite promising, with a low rate of taxes and favored regulations. This is another point why more and more businesses are coming to Vietnam to set up an Offshore Development Center.

The team structure suitable for your project and management style

Team structure in an Offshore Development team varies according to the client’s requirements. But the major roles include:

  • Account Manager: This person is like the focal point of communication between two parties of the client and the ODC. They take in your requirements and deliver them to the project manager and the development team
  • Project Manager: This person specializes in managerial skills and technical skills to carry out planning and executing, making sure the client’s requirements are met.
  • Developers: They are like worker bees working on different tasks of one project. The installation, testing, and maintenance process may be involved in the work, depending on the client’s requirements.

Pricing model for your project

The pricing model of Offshore Development is quite diverse, especially with the ever-changing market of the IT industry. However, there are two most popular models of Offshore Development Center.

– Dedicated Offshore Development Center:

Taking from its name, a dedicated offshore development center gives the client the whole fully functioning team. This team can act up as the client’s another subsidiary/branch that specifically works on the development and their IT-related tasks. This model is for large projects with undefined requirements, meaning that the team will work their way out during the work process. The client will pay upon the onboard time of the team.

– Build – Operate – Transfer:

This BOT model can be considered a more advanced price model of Offshore Development Center in general. During the work process, the Offshore team will be responsible for Development (in “Build”) for Implementation (in “Operate). Once the client wants to take over everything, they will sign a contract for further purchase and other legal matters.

This BOT model is also for large projects, and especially for companies wanting to enter the market of hosting countries.

Either you choose Dedicated Offshore Development Center or Build-Operate-Transfer, there will be a lot of things you have to take into consideration for the best interest of your company.

With all of the above information on Offshore Development Center, you can grasp the basic idea of how this works and how it can benefit your business. If you’re swamped with too much knowledge of this, you can contact our expert for more information.

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