How to Set Up Offshore Development Center in India? Complete Guide (2024)
29 JUL 2024Aunar
Deloitte has done market research on the global offshoring and came to a conclusion that around 55% of global companies prefer to outsource their IT requirements to India. And this trend is looking to grow at a rate of 5 to 6 percent in near term.
ODC an abbreviation of
offshore development center
is a physical office with full scale facilities of IT infra and resources. Offshore development centers have gained significant traction over the last 15 years. To meet the ever growing demand of tech resources, companies in North America and Europe are setting up offshore development centers in India
and other Asian countries. Not only is this economically better but finding the right skillset is easier in India.
The offshore software development market was valued at
USD 122 billion in 2024 and is anticipated to reach USD 283 billion by 2031, with a compound annual growth rate (CAGR) of 10.13% during this period. One of the main drivers for offshoring software development projects is the high cost associated with domestic development. Additionally, cloud computing is expected to significantly influence this sector by providing essential scalability and flexibility. These factors are projected to fuel the growth of the offshore software development market throughout the forecast period.
Given the pace at which IT / ITES demand is growing in the United States and Europe,
offshore software development
has become a right option for better scaling and and cost reasons. By offshoring software development, product development and apps development, companies are able to hire skilled
developers in India at a faster pace and with lower resource acquisition cost.
How to Setup Offshore Development Center? A Quick Guide in 8 Steps
Setting up an offshore development center (ODC) can streamline your development process and reduce costs. Here are eight essential steps to get started:
Step 1 : Define Objectives
Clearly outline your goals for the ODC, including the skills you need, the projects you'll undertake, and the expected outcomes.
Step 2 : Choose the Right Location
Research potential countries for your ODC based on factors like cost, talent availability, time zone compatibility, and cultural fit.
Step 3 : Select a Partner or Establish a Presence
Decide whether to partner with an existing firm or to establish your own dedicated team. If setting up your own center, consider legal and regulatory requirements.
Step 4 : Recruit Talent
Identify and hire skilled developers, project managers, and other necessary personnel. Use local recruitment agencies or online platforms to find the right candidates.
Step 5 : Set Up Infrastructure
Establish the necessary technology and tools, including hardware, software, and communication systems, to support your development processes.
Step 6 : Implement Processes and Standards
Define your development methodologies, quality assurance practices, and communication protocols to ensure efficiency and consistency.
Step 7 : Facilitate Communication
Set up regular check-ins and updates to maintain collaboration between your onshore and offshore teams. Use project management tools to streamline workflows.
Step 8 : Monitor and Optimize
Continuously evaluate the performance of your ODC, gathering feedback and making adjustments to processes, team composition, or technology as needed.
By following these steps, you can effectively set up an offshore development center tailored to your business needs.
What is Offshore Development Center?
An offshore development center is a software development services unit / office located in a different country than yours. So it's like a remote software development unit for your company in leading offshoring destinations like India, Ukraine and others. ODCs help companies to take advantage of international talents at lower costs.
An offshore development center comprises a dedicated team of programmers and developers who are hand-picked to complement the customer's skill-set and culture. This customized team works exclusively on behalf of the customer at the service provider's site (captive site) in a secure environment.
Offshore development centers
typically include the following roles, as the company’s head office determines the final structure of its offshore unit.
- Project Managers / Team Leads
- Software Engineers
- Developers (Front-End and Back-End)
- Manual and Automation Quality Assurance Specialists
- UI/UX and Web Designers
- HR Team
This model is alluring for both established and start-up companies, as it allows them to set up business presence in other countries with lower expenses at the same time.
Difference between Offshoring and Outsourcing ?
Outsourcing means getting services from a third party provider to accomplish internal operations of your company. The location of a third party doesn't matter in the case of outsourcing. The quality of the services provided by the provider and the way they match your business requirements.
Outsourcing is much more affordable with great quality. Many third party providers are experts at specific services and they master them constantly. This way a company can get high quality services at the lowest cost. Outsourcing services are very flexible in terms of working hours.
Moving a business process of your company to another country while retaining full control over it, is Offshoring. Offshoring allows companies to take full control over their operations.No need to share policies, sensitive data, or giving access to a company's database. outsourcing might be a bit risky while sharing a company's data with a third party provider.
When choosing between
outsourcing and offshoring
, put your business goals in the first place and make the choice based on them. But note that if you opt for outsourcing, take your time to choose a reliable service provider with proven experience within the necessary domain. By conducting thorough research, you will be able to minimize the risks and receive guaranteed high quality of work.
Why Offshore Development Center (ODC)?
- Decent Cost Economies
- Faster Talent Acquisition
- Flexibility in Skill Set and Team Size
- Multiple functional and technical experts are available at one table
When is the right time to invest in offshore software development ?
Every business doesn't need
offshore IT services
. But the advantages of offshoring are suitable for any industry or business of any size. So establishing your own offshore development center may become priority at any time.
Main Advantages of Outsourcing in India
It is well known that the cost of labor in Western countries like the United States is high. So, when it comes to comparing price and also the quality of work,
India has a vast pool of talent that is available at a comparatively inexpensive rate. By shifting their business service to a developing country like India, companies can leverage cost differences and get their services completed at a much lower price.
Hiring a team at lower cost is a major advantage but let me tell you a few more advantages that are also considered.
Reduced costs:Outsourcing to a third-party provider usually provides a large cost saving to businesses. For example, for a US company, getting a website developed and maintained in-house is much costlier than just outsourcing web development to an IT outsourcing service provider in India.
Focus on core competencies: Outsourcing lets the company dedicate concentrate on its business core operations.
Expertise: Outsourcing a business task like in a web development project, to a software development
outsourcing company
expert in development results in a high-quality, on-time, bug-free product.
Scalability: According to the business requirements a company that hired a
third party outsourcing company can increase or decrease in the size of the outsourced team. If a company hired a size of five remote developers for its project, but for some reason, it requires more developers, then the outsourcing service provider can easily scale up the team.
Skilled workforce: Another major benefit that US companies draw from offshoring is getting their work done by highly skilled and certified professionals. India is well acknowledged for its expert IT professionals, due to this reason many software companies have offshored their software development centers to India.
Infrastructure: With IT hubs in Bangalore, Gurgaon, and Hyderabad, India has proved itself to be a part of all the developed nations when it comes to IT infrastructure. Even the increased establishment of start-ups and SMEs are very well utilizing advanced technology tools to provide excellent web solutions.
Supportive Govt. Policies: It’s hard to find countries that have favorable and supportive government policies, whereas India is popular in terms of IT industry policies. The Information Technology Act and all other IT policies in India are supporting the industry’s growth.
Apart from the major these, there are many other perks of outsourcing web development tO India like consistent in quality, round the clock support, faster project delivery, and much more.
When to set up your offshore development center in India?
When project scope is large
When you want to create a mini project like mobile apps, easily you can use other outsourcing approaches. If you are planning for something bigger, then you require continuous updates and support from the team.
When you need a large team
When you have a plan of
setting up an ODC
, your team should be more than 40 members. It is always a good idea to follow the offshore development center(ODC) and have all the experts at one table.
When you are building sensitive and security software solutions
When your project contains sensitive and security data like, personal customer information, financial data, and more confidential information regarding the project and all. There could be an unexpected data breach. The ODC model could be a better fit than the other outsourcing approaches. You can also have an in-house cybersecurity team as an alternative.
Operating Models of Offshore Development Center
Customer Model
In this model the ODC works as a secondary company of the parent company. All the team members are full time employees of your company. The business unit operations are overseas that will be a major difference. There will be an on-site group of senior employees to make all the crucial decisions and manage everything. The other departments like development, testing and execution are provided by local experts. This model is more useful for large corporations.
Contractor Model
In this model the team members are not full time employees of your company. That allows you to save on overhead costs from your salary. You can hire specific experts as per the requirement for the sub projects. And you can remove them whenever their requirements are not needed. This model is suitable for start-ups, mid-sized companies and large corporations as well.
After all tasks are performed by the
offshore team
they will head back to the headquarters. With this process, you can mainly concentrate on the marketing of your work or product with your teams. Meanwhile the offshore development center will perform a particular part of your product development.
Step by step process to establish an offshore development center
Select a location
In the whole ODC creation process, choosing a location is the main important task. While making your choices pay attention to the
talent pool availability, specially if you have to deal with specific tech tasks. And also you need to concentrate on the education, communication skills, and experience in working on projects for your niche. And review the developers salary as per your budget expectations.
The several popular options we have for the destination:
1. India is one of the most popular destination for offshoring and outsourcing. India is the country with the relatively lower talent acquisition cost. It also offers abundance availability of software developers, testers and functional experts.
2. Eastern Europe - Ukraine and Poland have the largest talent pools. Ukraine alone has more than 1500 software development companies.
3. Less popular. Ex: Azerbaijan
Doing research and understanding the local legal regulations
You can hire a legal advisor to know about the selected countries' legal regulations. You need to follow all the legal rules for hiring, recruiting and taxation.
Make a business plan
Taking into account the specifics of the country, its political, economic, and investment environment, you will have to develop a business plan, highlighting the projects that will be built, their expected cost and expected revenue.
Project development
With the help of your development vendor, you will be able to solve all the organizational issues and proceed with your project development.
Offshore development center checklist
- Knowledge & skills
- Look for capability
- Quality standards & reliability
- Dedicated workforce strength
- Cost
- Quality assurance
- Check for communication gaps
- Delivery and guarantee
What kind of things do you need to discuss with your technology partner ?
- Pricing models
- Agreement cost
- Exception cost based on performance metrics
- Price stability
- Time accounting
- Milestone management
- Taxes
- Payment schedule
- Credibility
Offshore Development Center - Challenges
Contradictory Piece of Advise
Usually opening an office in foreign countries makes you consult many law firms, accounting specialists, and financial advisors. You may end up getting contradictory information from them. To avoid such cases, you need to find a partner that has considerable proven experience in the region's
IT industry.
Challenges in Recruitment
Sometimes local recruiters may fail to hire the required and expected IT experts within the expected time to put an effective team together. It is always better to choose experienced recruitment consultants to make a perfect team.
Management Challenges
It is very important to have a structural management process to balance and to take major decisions in the team. You must have a project manager for every development team. And you need to practice communications at the hierarchy level.
What are the risks in establishing an Offshore Development Center (ODC) ?
Choosing the wrong location
Though you have a right tech partner next you, if you make the wrong choice with the location. You're gonna face many issues in the long run. Lack of necessary talent, cultural differences, extra costs, and language barriers are most possible problems occurring.
Partnering with an untrusted tech vendor
Choosing the wrong tech vendor brings you serious issues with service delivery and final product quality. Social proof and validating the reputation of the company are very important before making the final decision on collaboration.
IP security and data confidentiality
As data security has become the biggest concern of today, we need to follow the latest security protocols while data transmission and sharing.
Communication gap and delay
As the time zone differs there will be communication gaps between employees and that may cause delays in the whole working process.
Hiring people with no prior offshore recruiting experience
You need to be very careful while hiring the employees. If you hire someone without any prior experience you need to start from the scratch. That will cost you money, time and you may not get the expected final product quality.
IT Services outsourced to India
Build Your Offshore Development Center in India with PROVAB
Global companies are understandably concerned about the capability and competence of the developers / testers / experts who will be working on their projects in offshore teams. This is an important factor in outsourcing decisions. With
PROVAB as your offshore development company
, you will not have to worry about these.
