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Analysis and Insight from Savvycom Team.

As the offshore software development trend continues to rise, the need for offshore development centre (ODC) naturally follows.

To many IT companies, ODC is long no longer an unfamiliar term and is slowly becoming a favourite option for software development solutions due to its cost-effectiveness and great access to the vast availability of tech experts.

If you wish to reduce software development costs and improve software quality by using an OCD yet don’t know where to start, this article might be just for you.

In this article, you will learn:

  • Definition of Offshore Development Centre.
  • How to set it up with full checklist.
  • Best Practices to Maintain an Offshore Development Center.
  • Why and Where to offshore to Vietnam?

Let’s dive deeper!

Offshore development centre setup

1. What is ODC in Software Development?

An Offshore Development Centre (ODC) is an offshore team of integrated talents which offers software development services for the company but is located in a foreign country. Simply put, it is a subsidiary of a company which operates in another country.

The country where the ODC is located usually has a much lower cost of living than the one where the mother company is located. However, it is essential that the location for setting up an ODC have resources available for the integration of the company.

To reduce the workload for the main office, offshore development companies usually have a team of specialists in all kinds of management and technical aspects apart from programmers and testers, ranging from project managers, designers, testers, UI/UX specialists to account manager, HR team and so forth.

Moreover, ODC has its own advanced equipment and infrastructure, which minimises the burden of additional expense on offices and equipment.

SO…

Is it different from Outsourcing?

Many people think of “outsourcing” and “offshoring” as interchangeable, but they are two distinct concepts.

By definition, outsourcing refers to “obtaining certain services or products from a third party company, essentially sourcing something like accounting services or manufacturing of a certain input to another company […] Outsourcing can be done to a company that is located anywhere, the location isn’t important” (BusinessDictionary).

On the other hand, offshoring refers to “obtaining services or products from another country […] For example, when a car manufacturer in the U.S. opens a factory in Thailand to make certain parts they are offshoring” (BusinessDictionary).

So, what are the differences here?

Offshore Development Centre (ODC): How To Set It Up? (+A Detailed Checklist)
Offshoring and Outsourcing are two distinct concepts. (Image: FullScale)
  • Work Location

From these definitions, it appears that in essence, offshoring only takes place internationally whilst outsourcing can be carried out both locally and internationally.

Most of the time, offshoring is international outsourcing, but there are cases where a company is offshoring without outsourcing.

For example, IBM can offshore work to its Indian offices, but since both the people sending the work and doing the work belong to the same company, they’re offshoring and not outsourcing.

  • Objective of Each Activity

Outsourcing is all about specialization: a company contracts certain business activities to a specialized, external party so that it can focus on its expertise and core activities.

On the other hand, offshoring aims at minimizing the cost, taking advantage of the cost difference between the two countries.

  • Level of Control.

A company will have greater control when hiring an offshore team than outsourcing to a third party. Though being their own established entities, ODCs follow the company’s guidance; meanwhile, an outsourcing vendor works independently to complete necessary tasks, which might cause loss of control on the company’s part.

Key Members in an ODC

As you establish an offshore development centre, it’s important to carefully discuss and identify the key members in the OCD with an offshore vendor.

An offshore team should include these major roles:

  • Account Manager – Responsible for the management of relationships with particular clients, ensuring that all your needs are fulfilled.
  • Project Manager – Responsible for the entire project from planning to executing, making sure that all the required resources in the project are covered.
  • Designers and Developers – Responsible for the design, installation, testing, and maintenance of your software.
  • Test Engineers – Check the integrity, quality, and even non-functional requirements of your product.
  • Usability Engineers – Perform tests to evaluate the usability or user-friendliness of your product.
  • Graphic Designers – Creates visual and graphical concepts or language to promote a product’s unique persona or brand.
  • Content and Technical Writers – Create instructions and content integrated into the software or website.

2. How Does Offshore Development Center Model Work?

Discover the most polular ODC models and how they work.

Contractor ODC Model

In this model, the main office sends a set of specific requirements to the contractor, or the offshore development center. Then a team will be selected based on those requirements.

This team will then be responsible for a wide range of tasks, both managerial and technical, including analytic and system design, updating software, writing new code and so on.

Contractor ODC Model
An Example of Contractor ODC Model (Image: Existek)

This model is suitable for small companies.

Customer ODC Model

In this model, a custom team is also selected based on the specifications of the customer, or the main office, but the main office will cover a lot more tasks than it does in Contractor OCD Model, ranging from product research and analysis to team management. The OCD team will focus mainly on coding.

Customer ODC Model
An Example of Customer ODC Model (Image: Existek)

This model is recommended for big companies which have the capacity to handle a large number of tasks.

3. Why set up an ODC?

Forming a partnership with an ODC company would bring your company lots of advantages and disadvantages.

Why set up an ODC?

PROs

The outstanding pros of having an ODC are as follows:

  • Cost reduction

The Offshore Development Centre has its own equipment and infrastructure, as well as a team of experienced specialists.

Your company won’t have to worry about expenses for setting up the necessary infrastructure. As a result, the ODC project can begin much faster and cost you less compared with building everything from scratch.

  • Access to a large pool of IT talents

An ODC is one of those places where you can find highly proficient IT teams with proven IT competency, skills and experience.

Leading ODCs often puts great emphasis on sharpening the skills of their employees, making sure that they are capable of delivering the best solutions to your target customers.

  • Great control over operations

As mentioned previously, the ODC strictly follow guidance from the main office. You’ll be able to evaluate and keep track of the current work progress.

You might want to negotiate contract terms with the ODC company so that if the results don’t live up to your expectations, you can demand the ODC to fix the project with extra costs.

  • Continuous technical support

ODC offers continuous technical assistance during the entire cycle of the project. During the project, offshore companies use their expertise to complete their tasks. They also gain more knowledge which will be further developed later on and then applied to other projects if possible.

  • Projects delivered on time

ODC teams are able to deliver in a timely manner because they operate under optimal conditions and closely stick to the project timelines and guidance set by the main office from the beginning to the end of the project.

In addition, they effectively cooperate with the in-house team, which makes it possible to reduce the total amount of time to complete the project.

  • Efficient allocation of resources

The amount of resources required varies from project to project. There are times when resources at the main office have to be reallocated to accommodate the project requirement; you will have to either reduce or increase the number of staff in your in-house team.

An ODC is like an extended arm that have the capability to perform the tasks of the in-house team, effectively assisting you in scaling your IT department. Without an ODC, resources allocation would be a very challenging feat.

CONs

However, there are some inevitable disadvantages of having an ODC, which are:

  • Remote management challenges

Although technology has developed enough to assist remote work, that doesn’t mean communication issues never arise. Fostering open communication with remote employees can be difficult.

So, managers of the main office should be able to get their ideas across and make sure that the remote team gets hold of the current strategy. This guide of Savvycom will help you to overcome time zone issue with offshore developers.

  • Cultural barriers

Cultural differences can negatively affect the work process.

For example, an Indian or Chinese programmer who is used to the hierarchical workplace culture might not feel pleased with the casualness and informality typical to the US workplace. Differences in cultural and business values are where conflicts often come in, which can lower morale and reduce work efficiency.

  • Legal barriers

Some countries prevent foreign companies from setting up business within their territories, which poses a great challenge to the registration of new legal entities. Therefore it is important for leaders of the company to thoroughly research the offshore countries beforehand to know if those countries have open policies regarding foreign companies.

  • Security risks

It’s not exactly easy to keep your confidential information safe at a distance. Data leakage can happen and the government where the offshore company is located can require you to provide access to your company’s restricted information.

4. ODC Checklist

Before venturing into the work of establishing an Offshoring Development Centre, here is a list of important requirements to help you determine the best ODC vendor.

Skills and Quality

From the very beginning, it is important to have a thorough understanding of which country offers the best service without wasting your company’s budget.

Alongside the top two IT outsourcing destinations (India and China), Vietnam is a rising destination that is drawing the attention of many foreign businesses. Vietnam has a great pool of skillful software developer who have a solid IT background and always stay up-to-date with all the latest technologies.

Work Profile

How to know which company is good for entering a partnership with? Look into their history. Ask their clients. Reviews and interviews from clients are priceless. Through this, you will gain more knowledge of the company and its business activities.

It is recommended to partner up with ODC companies with years of experience. These firms are more familiar with utilising suitable technologies for ODC projects, and they keep up with the trends in the world of technology.

More importantly, companies with long history are likely to be more reliable when it comes to keeping project and information safe and confidential.

Communication

There will be less burden when working with an ODC company in a country where there is no trouble communicating. Companies that want to reduce labour costs can look for employees from countries such as the Philippines, India and Vietnam who have good command of English, with which advantage makes misunderstandings less likely to happen between the client and the ODC company.

5. How to set up an ODC?

Now, after all the research and selection on the country and ODC company, let’s move on to the actual work required to launch an ODC project.

  • Assort your organisation structure with your new team: It is substantial that each member within the team understands their role and responsibilities well right at the start.
  • Create descriptions for all job vacancies: Pay attention to every aspect of the applicants, from qualifications and education to soft skills.
  • Plan your ODC security measurements: What parts of the project will be accessed and authorized by which members.
  • Start the development process management: Select your approach and outline the timeline for each project, whether it is software updates or just reports.
  • Give your new team the time to understand their place in the company: This includes the relationship between members as well as between member and manager who they report any issues. Every member should learn how to report any problems to manage them as quickly as possible.
  • Team management: If the company has several teams, set up the obligation areas between them, or combine workforces to one part of the project if needed. The offshore development team and the in-house team should cooperate with each other.

6. Billing models used in IT ODC

Time & Material model

This model is recommended when the scope and the specifications of the projects are subject to change. Clients can add or remove resources as their project requirements are modified. They will be charged based on the actual amount of time and effort the software developers spend working on the project.

Fixed cost model

This model is suitable for short-term, small and medium-sized projects with well-defined scope and specifications. The timeframe and cost are fixed before the project begins, and clients will be charged accordingly.

Dedicated resources hiring model

This model is used for long-term projects with unclear scope and requirements. Within this model, clients will have a whole team at their disposal and follow a simple pricing system: clients will pay a monthly sum of money that covers the salary of each team member plus overheads, including outsource provider’s administrative and infrastructure expenses.


7. Best Practices to Maintain an Offshore Development Center

Treat your in-house and offshore teams equally

Both are equally important to the company’s overall success, so it’s essential that the offshore team receive the same treatment instead of being treated as a separate, supporting team.

Include them in your decision-making process and maintain a harmonious relationship between your in-house and offshore teams, which will in turn translate into workplace camaraderie and productivity.

Get the big picture across

An ODC is also a part of your team, albeit remote. It’s important for every single member in an ODC team to be aware of the big picture and act accordingly, ensuring that both in-house and offshore teams are working toward a common goal.

What is included in the big picture?

First, make sure to clearly communicate your company’s mission, vision, values and culture so that your ODC team know they are working with a purpose. A purpose-driven team is more likely to engage better in their job and have higher productivity.

Similarly, convey your product vision which should be aligned with your company goals and which will serve as a guide for your offshore team to make their decisions during the time of the project. Your offshore team needs to understand that even the smallest, simplest choices they make are tied to the bigger purpose of the company.

As your offshore team works on their project, show them the long, comprehensive list of tasks and priorities, so if they get stuck on one task, they can always move on to others.

Ensure clear communication

Keep your directions short and sharp. Chances are that your offshore team might have a completely different cultural background from yours. They might even have difficulties communicating in English. In these cases, get straight to the point and make sure they understand it.

Use effective communication tools to better demonstrate your ideas. A screenshot or quick video sent to your offshore team can be more helpful than hours of poring over instruction documents. Do meetings and video conferencing via platforms such as Skype or Zoom to better keep track of the work progress.

Motivate your ODC team

Always look for ways to boost your team’s motivation, here are several examples:

  • Make it challenging

Never treat your offshore team as the mere supporters of your in-house team. They are qualified developers with excellent expertise and skills, so don’t be afraid to show them your high expectations. Challenging them with critical tasks can boost their motivation and improve your business outcomes.

  • Encourage autonomy

Let your team self-manage and make their own decisions whenever possible. There’s no use constantly telling your remote team what to do and how to do it. Instead, show that you trust and have confidence in your offshore team by allowing them to decide how they accomplish their given tasks. However, it’s important to set the boundaries of your ODC team’s control and always maintain effective communication between you and your team.

  • Seek for their opinions

When making a business decision, show that your offshore team’s opinions matter by encouraging them to contribute their ideas and thoughts or to give you feedback. Once your offshore employees feel appreciated, they are more likely to share valuable ideas and remain strongly committed to their job.

TIP: Savvycom has an in-depth guide about How to Build a Software Development Team and we think it can help you when it comes to team motivation. Don’t miss!

8. Why Vietnam?

Vietnam is among the top destinations in Asia for software offshoring, as this country has shown lots of potential for IT development.

Let’s first take a look at some of its highlights:

Why Vietnam?

  • BPO (Business process outsourcing) market has grown 20% to 35% annually, much faster than annual GDP growth of 5.2 to 7.1% from 2012 to 2018, with a revenue of 2 billion USD in 2015 
  • Ranked 1st in pioneering location and cost environment (Cushman & Wakefield business process outsourcing and shaped service location index, 2016-2017) 
  • Ranked 6th in the Top 55 most attractive countries for Global Outsourcing Services in 2017 (GSLI 2017) in a research by AT Kearney Consulting Firm
  • Surpassed China to become the second largest offshore software research and development (R&D) partner for Japan in 2016. 
  • Top 10 countries with the most engineering graduates in 2015 according to Forbes 
  • Has attracted investment from major IT companies such as Intel, IBM, Samsung Display, LG, Nokia and Microsoft.

Vietnam has young, dynamic IT workforce with talented developers. The size of this IT workforce is increasing each year with a total enrollment of over 68,000 students from 250 universities and colleges with majors of IT, electronics, telecommunications and information security, according to 2017 Vietnam Information and Communication White Book. 

The Vietnamese IT workers are also said to belong to a culture of loyalty with significantly low attrition rate of between 6 and 8 per cent, as opposed to a 20 per cent rate of India in 2015 

In recent years, the government policy has strongly encouraged investment in high-tech zones and IT parks.

Another reason that makes outsourcing to Vietnam an appealing option is its cost-effectiveness. Vietnam is among countries with low cost labour; IT industry is not an exception. In addition, high technology is a sector that are granted tax incentives by the Vietnamese government, according to PwC – Vietnam Pocket Tax Book 2019 

Offshore Development Service: Why Savvycom?

Savvycom is here to give you just that- relentless support and a smooth-running ODC. Contact us now to turn your dream ODC into a reality.

Unparalleled expertise

Our stringent selection process ensures that you can get access to a pool of highly skilled, certified and proficient software developers who aim to help our clients accomplish their goals using unparalleled domain expertise combined with leading-edge technologies.

Proven experience

Over the past 10 years, we’ve completed more than 300 successful projects across a variety of industries and brought satisfaction to over 100 clients.

Trusted services

With Savvycom’s services, you retain full control over the project management. All offshore members of the ODC are selected as per client’s requirement. We also adopt a flexible and scalable model that allows effective resources allocation in accordance with our clients’ demand.


Final Thoughts,

Thanks to its cost-effectiveness and convenience, Offshore Development Center is a trend that doesn’t seem to fade anytime soon. If you wish to set up your own ODC, however, be mindful of the disadvantages it might bring.

It’s important to carefully study the list of an ODC’s requirements before making your decision to set up one. You might want to go as far as to get consultation and assistance from a trusted offshore provider.

We’re happy to discuss with you to find out success solution or lend you our professional and experts.

    • Phone: +84 24 3202 9222
    • Hotline: +84 32 657 2886
    • Email: contact@savvycomsoftware.com
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