What Are Offshore Development Centers?

An Offshore Development Center (ODC) refers to a team of software developers, designers, and IT specialists working remotely from a different country or region than the client's main office. The primary objective of an ODC is to deliver cost-effective and efficient software development services while upholding software quality standards.

As businesses continue to globalize, several companies are adopting offshore development centers as a strategic method to tap into international talent pools and minimize operational expenses.

This is part of a series of articles about remote engineering.

In this article:

ODC vs. Outsourcing: Key Differences

ODCs and outsourcing both involve remote teams, but their approaches to software development differ.

Control Levels

  • ODCs offer greater control over teams and operations compared to outsourcing. You can directly manage remote team members, set goals, monitor progress, and make strategic decisions.
  • With outsourcing, third-party vendors independently manage projects, relinquishing some control.

Team Composition

  • ODCs hire dedicated resources working exclusively on your projects, promoting collaboration and communication.
  • Outsourced teams might work for multiple clients simultaneously, leading to divided attention and decreased focus on your specific needs.

Cultural Compatibility

  • In ORCs, organizations invest in building strong relationships with remote teams, aligning them with company culture and values.
  • Outsourcing relationships are more transactional, potentially causing misunderstandings or miscommunications.

Costs and Pricing Structures

Both ODCs and outsourcing offer cost savings, but their pricing structures differ:

  • ODCs usually have a fixed monthly fee or retainer model. However, ODCs can also work in a per-project model, as described below.
  • Outsourcing typically charges per-project or hourly rates for specific services.

Long-term vs Short-term Engagements

  • ODCs are more suitable for long-term engagements, enabling lasting relationships and knowledge transfer continuity.
  • Outsourcing is more appropriate for short-term projects or tasks requiring specialized expertise, ideal for quick results without long-lasting commitment.

Offshore Development Center Models

Dedicated Team Model

The dedicated team model involves assigning an offshore team exclusively to a client's projects. This model is suitable for long-term tasks or when specialized expertise is needed that might not be available internally. The dedicated team functions as an extension of your in-house development team, collaborating closely to achieve project goals.

  • Pros: Enhanced control over resources; increased commitment from the offshore team; smoother integration with existing processes.
  • Cons: Might require more management effort from the client; less flexibility compared to other models.

Project-Based Model

The project-based model, also known as ‘fixed price’ or ‘time and material’ model, entails hiring an offshore development center for a specific project or task within a predetermined timeline and budget. This model is ideal for short-term projects with well-defined requirements and deliverables. The ODC assumes full responsibility for managing resources and delivering results according to agreed-upon milestones.

  • Pros: Clear scope definition; predictable costs; minimal client involvement.
  • Cons: Limited flexibility for scope changes; potential quality issues if the offshore team lacks experience or expertise.

Hybrid Model

The hybrid model merges elements of both dedicated team and project-based models, providing a more adaptable approach to ODC collaboration. In this model, a core dedicated team works on long-term projects, while additional resources are engaged for specific tasks or short-term projects as needed. This enables you to scale your offshore development center up or down based on project requirements and timelines.

  • Pros: Increased flexibility; optimal resource utilization; cost-effective solution for varying project needs.
  • Cons: May require more management effort from the client; potential communication challenges between different teams involved in various projects.

Offshore Development Center: Benefits and Challenges

Despite its potential advantages, managing an ODC poses certain challenges that must be addressed to ensure optimal performance.

Benefits of an Offshore Development Center

  • Cost savings: A primary reason companies choose ODCs is cost reduction. By hiring developers from countries with lower labor costs, organizations can significantly save on salaries and overhead expenses.
  • Access to talent pool: An ODC enables companies to access a global talent pool without geographical constraints, allowing them to find skilled professionals who may not be available locally or within their existing networks.
  • Faster time-to-market: With dedicated teams working around-the-clock on your projects, you can accelerate product development timelines and launch products more quickly.
  • Risk mitigation: Establishing an ODC diversifies your workforce across multiple locations, helping to mitigate risks related to natural disasters or political instability affecting your primary location.
  • Innovation boost: Collaborating with diverse teams brings fresh perspectives and ideas that could lead to innovative solutions.

Challenges of an Offshore Development Center

  • Cultural differences: Working with offshore teams can lead to misunderstandings and communication breakdowns due to cultural differences. It is crucial to invest effort in building strong relationships and understanding each other's working styles.
  • Time zone challenges: Coordinating across multiple time zones can be logistically challenging. To minimize the impact on productivity, establish clear communication channels and schedule regular meetings that accommodate all team members' schedules.
  • Data security concerns: Ensuring data security is paramount when sharing sensitive information between locations. Companies must implement strict data protection policies and ensure their ODC partners comply with them.
  • Talent retention: High employee turnover rates are common in some offshore markets due to intense competition for skilled professionals. To retain top talent within your ODC, offer competitive compensation packages and growth opportunities.
  • Maintaining quality standards: Ensuring consistent quality across all projects may be challenging when working with remote teams. Implement standardized processes, use project management tools like Jira or Asana, and set up continuous integration/continuous delivery (CI/CD) pipelines to ensure high quality of releases.
  • Knowledge transfer: Transferring existing product knowledge to remote teams can be a daunting task. Existing team members may have tacit knowledge and understanding about the product that is not formally documented. This can lead to gaps in knowledge when trying to bring remote teams up to speed.

How to Set Up and Manage an Offshore Development Center

Select the Right Location

Choose a location with a strong talent pool in your desired technology stack or domain expertise. Research publications such as the Global Services Locations Index (GSLI) can help you identify countries that offer cost-effective labor rates while maintaining high-quality standards.

Hire Skilled Professionals

Employ thorough screening processes when recruiting offshore developers. This includes evaluating technical skills through coding tests, conducting interviews focused on problem-solving abilities and cultural fit, and verifying previous work experience via references. Key roles in an ODC include:

  • Project manager: A local project manager who comprehends both the business requirements and development processes is essential for effective coordination between onsite stakeholders and offshore teams.
  • Tech lead/architect: An experienced professional responsible for guiding the technical direction of projects ensures adherence to industry best practices.
  • Developers and testers: A combination of senior-level developers with deep expertise in specific technologies and junior resources helps balance costs without compromising quality output.

Promote Effective Collaboration Practices

To avoid misunderstandings due to language barriers or time zone differences, establish clear channels of collaboration using:

  • Messaging platforms: Tools like Slack or Microsoft Teams promote effective real-time collaboration.
  • Video calls: Schedule regular video calls and status updates to keep everyone informed.
  • Version control: Utilize platforms like Git or SVN for efficient code management and collaboration among team members.
  • Bug tracking: Tools like Jira or Bugzilla can be used to track issues in real-time, ensuring prompt resolution of bugs throughout the project lifecycle.

Additionally, consider providing language training or cultural sensitivity workshops for both onsite and offshore teams.

Implement Agile Project Management

Adopting an agile methodology, such as Scrum or Kanban, can help ensure that projects progress smoothly despite geographical separation. This approach promotes iterative development cycles with frequent feedback loops, enabling ODC teams to adapt quickly to changing requirements while maintaining high-quality standards.

Evaluate Performance Regularly

In addition to tracking individual performance metrics such as productivity rates and bug fix turnaround times, monitor overall team effectiveness through key performance indicators (KPIs) like velocity charts and burndown reports. Conduct periodic code reviews with ODC team members to verify code quality and functionality.

Manage Knowledge Sharing with Swimm

In order to address the challenges of knowledge sharing faced by offshore development centers (ODCs), implementing a comprehensive code documentation tool like Swimm can greatly enhance collaboration and streamline the sharing of knowledge among remote teams. Swimm focuses on code documentation, both within the IDE and CI/CD.

Furthermore, by adopting Swimm as a code documentation tool, offshore development centers can effectively manage knowledge sharing and overcome the challenges associated with remote teams.

Learn more about Swimm