Offshore Development Center in 2022: Taking Offshoring to the Next Level
The aftershocks of the pandemic and political tensions that continue to echo in the global economy. This shaking ground, in turn, jolts companies into becoming more flexible and technologically advanced. And an offshore development center seems to be the linchpin of cost-effective innovation.
As the demand for tech talent grows, companies struggle to fill in the skill gaps. According to the statistics, the IT job market now lists over 3.90 million vacancies in the United States, with about 200,000 of those positions unfilled. The lack of talent goes hand in hand with the rising costs of technological innovation. To battle all-time high salaries and a talent crunch, organizations move technology production to other, more cost-efficient locations.
Outsourcing has been a well-established practice in pre-pandemic times and will continue its reign for years beyond. The rationale is simple: why would you pay $125K to get your software built in the US if you can hire a developer for $36K in Poland? After all, 2020 forced all of us to switch to remote collaboration mode.
But can an offshore development team suffice multiple long-term innovation imperatives? Unfortunately, the answer is probably no, so you might need another option.
What is an offshore development center?
An offshore development center (ODC) refers to an overseas development facility with a cross-functional team, the required office equipment and amenities, and fully managed processes — all tailored to the needs of a client. Opening an overseas development center allows you to save development budgets, accelerate time to market, and grow your market reach even if you face a lack of talent in your country.
Dedicated team as your first step to the offshore development center
Most companies don’t have the need to commit to full-grown centers in the early days of outsourcing. In this case, the dedicated team model can act as the middle ground between an IT staff augmentation and offshore software center. A dedicated team helps you counter the headwinds of talent shortages and skill scarcities, but with fewer resources compared to a full-scale offshore development branch.
A dedicated team carries the development process from ideation to completion as an autonomous agile squad allocated exclusively to your business needs and development tasks. This hiring model can cover both end-to-end development and specific processes such as design, testing, or business analysis.
Regardless of the area of competence, a dedicated team brings to the table the following value:
- Self-management and process setup;
- Relevant expertise and domain knowledge;
- Focused approach and transparent collaboration;
- The flexibility and ease of hiring;
- Bespoke hiring according to your unique job requirements;
- Reduced cost of innovation as the vendor takes over overhead expenses, hiring costs, training, and employee benefits.
As you see from the impressive list of advantages, this collaboration option works best for long-term software projects with dynamic requirements. But what if you have specific security requirements or have to handle sensitive health or finance data? Or your project is hardware-dependent? In this case, you might find yourself grappling with a whole lot of security, equipment, and other overheads.
The bright prospects of dedicated development also dim when you need a whole software development hub to address your large-scale project needs. Managing a motley crew of 20 dedicated teams across different geographies and time zones becomes more trouble than it is worth. Outsourcing doesn’t seem like such a win-win solution anymore.
When is an offshore development center your best bet?
So how can you build up your outsourcing capabilities and take the hassle out of team management? Go one step further and switch a dedicated team for a dedicated offshore development center. Along with the ease of crewing, an ODC extends your production capacity without increasing the risks.
Here’s when offshore development services can help you reap the biggest benefits.
Your business has special data security requirements
An offshore development center is like a new offshoot of your company, except that it is premised overseas. Therefore, it has everything you’d need in a traditional office to meet the required level of security. A private office space, authorized entry, software access control, and built-in network security make your ODC space the guarded fortress of product development.
As you have a single development unit, you won’t have to hire multiple management security information officers or compliance officers to track compliance adherence and security.
You require bespoke tech expertise
Niche skills might be expensive to secure or nurture unless trained in a more affordable location. Offshore dev centers allow you to set up a training center without spending your resources on third-party upskilling programs.
In this case, the training course contents are customized to meet company-specific goals and do not expose your organization to additional security risks. In-house training also guarantees the right level of knowledge and is a perfect match for existing technology gaps.
Your project is huge
One-time or minor projects are often better off with a dedicated development unit, while large-scope development initiatives require continuous support, updates, and limitless scaling. An offshore center allows you to establish a continuous loop of delivery and scale your development facilities for multiple projects — all in one place.
You want to achieve more by spending less
If software development is not the core competence of your company, an offshore development location becomes the best option to keep your development costs moderate. ODCs are not typically packed with the same overhead costs that internal offices are. This way you get to reduce expenses such as office space rent, infrastructure, electricity bills, office maintenance, and, most importantly, salaries and taxes.
Unbeatable triad: benefits of offshore development services
You know there’s something to it when A-list companies resort to offshore development offices. Google, Microsoft, Apple Inc, and other giants have their technology development sites located in other countries, far away from their head offices. So, why do forward-looking businesses flock to offshore teams? We have the answer.
Providing domain expertise and vetted specialists at a lower cost
Offshore development services allow you to tap into the global talent pool, whatever the niche or domain knowledge you need. While your in-house candidate base is limited by geography, an ODC vendor has access to an infinite supply of vetted candidates from a rich, local talent database.
As ODC offices are typically premised in low-cost economies, a vendor helps you secure a local team of professionals at the fraction of the price you’d pay in-house. You don’t also have to deal with the pain of hiring and onboarding a new team, leave, insurance, and other employee costs, which significantly lowers your bill.
Taking care of complex administrative functions
From a legal standpoint, establishing an offshore development center requires you to create a new legal entity. However, you don’t need a degree in Legal Studies to make that happen. Instead, your local ODC partner does the heavy lifting of legal regulations, taxes, HR-related issues, and other administrative burdens.
It also means that you don’t have to dispatch operational resources overseas to solve issues like office renovations and payroll taxes or wade through the jungle of local laws and business processes.
Ensuring full compliance with your requirements
An offshore software team operates in full compliance with your industry regulations following documented development processes. As the team augments your in-house unit, you have full control over its performance and every operation of your projects. Moreover, an offshore software development office gets certified and audited in line with your specifications.
Investing in your own offshore development center: is the game worth the candle?
Offshore development centers have got a lot in store for fast-growing companies. However, you must go a long way to create a development center in an overseas location, especially if you decide to go on your own.
Choose your ODC destination
You first need to decide on the optimal location of your offshore development center. There are a lot of factors to take into consideration — from the tax policy to the English language proficiency.
Hire a legal consultant
A professional consultant is needed to help you look into the legalities of a business entity and select the right legal structure.
Register your center as a legal entity
Once you’ve decided on a legal form, you need to submit a package of documents to the territorial registration authority for state registration.
Find, rent, and renovate an office
After all the paperwork is done, you have to find a workspace for your offshore unit. In most cases, the office will need renovation, new equipment, and other office materials.
Grapple with the local tax system
Now it’s time to dive into the tax mystery and find out more about your tax liabilities.
Hire recruiters, administrative, and support staff
As it’s a full-fledged office, your center requires trained personnel to take care of the workspace and handle your business processes.
Run a brand-building campaign
When you’re all set, your new branch needs some exposure to establish its market presence and get a headstart in the unknown business landscape.
Recruit and retain developers
And now, if you’re persistent enough to complete this arc, you get the final prize — the never-ending dread of hiring local specialists from the uncharted local market.
By this time, you might think that initiating an overseas office is an overlong, expensive, and challenging endeavor. You’re right, it is. But it doesn’t have to be if you have a trusted ODC vendor onboard that has a decade-long experience in setting up offshore centers. In this case, your responsibility area (and expenses) shrinks down to choosing your ODC location and validating completed tasks.
What location to choose for your offshore software development center?
When scaling beyond borders with an ODC, the location choice can either make or break your undertaking. An ideal destination should offer a sizable talent market not to limit the growth of your center. The price-value ratio is also important to gain from the new office and innovate at lower costs. Moreover, your ODC team must be on the same wavelength as you, which is impossible with cultural and language gaps.
Eastern and Central Europe is traditionally considered to be a cost-affordable offshoring mecca. This is why Bulgaria, Romania, and Poland are among the most favored offshoring locations where all criteria are aligned. So let’s have a closer look at one of the leaders — Poland.
Extensive developers’ skill sets
Poland is home to software developers with high proficiency in multidisciplinary fields. The expertise and knowledge of Polish software engineers have earned them third place among locations with top developers. Moreover, Poland hosts the largest IT talent pool in Europe with over 400,000 IT professionals on the market, which makes this location a key IT powerhouse.
Dynamically growing IT market
While being a mature outsourcing market, Poland continues to gain more steam in the IT sector. According to Statista, the revenue in both IT and IT outsourcing markets has followed the growth trajectory over the last few years.
The country’s IT services market increased to a projected $6.45 billion in 2022, with outsourcing being the largest segment, valued at $2.29 billion. The resilient economy of Poland contributes to the overall image of a breeding business ground.
Strategic location in Europe
Poland’s EU positioning translates into a convenient time zone. Warsaw has a six-hour time difference from New York, which allows software providers to deal with their clients’ requests without delay. To put it into perspective, India is up to 12 hours away from the USA. As for other countries, such as the UK and the rest of Europe, Poland’s prime location allows for frictionless communication with no time lags.
Low development costs
Unlike other Western European countries, Poland offers vetted talent at affordable rates. According to PayScale, the average yearly rate for Poland-based software engineers stands at over $21,000 per year, while the average US developer is paid x6 times more.
However, lower rates do not come at the cost of lower quality. Instead, the quality of software development is on the same or higher level than in top-paid locations.
Compliance with EU and US data protection standards
Due to its strategic location, Poland is subject to the same data protection regulations as other EU countries, such as Germany or the Netherlands. Hence, the data protection regime in Poland is mostly governed by the General Data Protection Regulation or GDPR, a well-known compliance standard for EU companies.
HIPAA certification is also commonplace in the country, validating the skills of Certified HIPAA Professionals (CHPs), Certified HIPAA Administrators (CHAs), and Certified HIPAA Security Specialists (CHSSs). This means that compliance-wise, Poland stands on par with EU- and US-based organizations, suggesting high compliance literacy of local developers.
No communication gaps
Poland is a part of European culture, so there’s no cultural gap between the team and the client. The influence of European culture in Poland is combined with the global mindset of operating businesses. Therefore, business operations aren’t compromised when local teams communicate with people from different backgrounds.
Moreover, the country is well-known for its outstanding English proficiency. According to the EF English Proficiency Index, Poland ranks 11th out of 100 counties in the world for the knowledge of the English language. So as long as you speak English, you’ll be fully aligned with your Poland-based ODC team.
Mature R&D hub
Global tech leaders, including Microsoft, Google, Oracle, and others have located their research and development centers (R&Ds) in Poland. It proves that this ODC location offers a mature, affordable, and tax-friendly outsourcing framework that encourages foreign investment for the development of innovative products.
However, even the best setting can be rendered ineffective with the wrong team onboard. Therefore, the choice of a reputable and experienced partner is yet the most important success factor for establishing your foreign presence.
What to look for when choosing a vendor for offshore development services?
The stakes are high when it comes to confiding a fully functional business unit to a third party. It means that your ODC partner should act as an extension of your company, know the ins and outs of your domain, and keep your business bar high.
And the easiest way to forecast the reliability of your offshore development center vendor is to look at its track record. The more ODC projects they have under their belt, the more likely your initiative to pan out. Here are some other ways you can validate the credibility of your partner.
Evaluate IT expertise
Besides English, your team should speak the language of innovation to power your products with the latest technologies. Usually, the main reason for one business to resort to a third party is the lack of high costs of technical knowledge and domain expertise on site. For instance, a company wanting to drive digital transformation doesn’t have what it takes to build a BI and analytics system, so they farm out the function to the vendor.
On this front, you should consider the particular tech stack and the focused domains that you are interested in. For example, *instinctools is a great fit for cloud-based projects (with Google Cloud, Microsoft Azure, and OVHcloud partnerships under our belt), custom enterprise software development, and Business Intelligence powered by Power BI, Tableau, and Qlik. On top of our tech expertise, we also offer a wide array of consulting services crowned with an end-to-end technology-enabled business transformation.
Besides the broad and in-depth technical knowledge, your partner should know the ins and outs of your industry to align technology with business value. With domain expertise, developers can also contribute on a conceptual level and minimize development risks. We, at *instinctools, have accumulated extensive industry proficiency that spans virtually all domains — from manufacturing to healthcare to entertainment.
Investigate relevant experience
No matter how far and wide your vendor’s technology command spans, it’s feeble without real-world experience. Therefore, the best way to set up your initiative for success is to drill down into the vendor’s portfolio.
Ideally, the portfolio should feature similar projects in the same or an adjacent domain. Make sure that your selected partner also boasts hands-on experience in establishing offshore development centers and associated processes.
You can also reach out to the partner directly if you cannot find relevant projects — not all projects end up in the Clients section due to confidentiality issues. Client testimonials on Clutch, GoodFirms, and other directories can also give you an idea of the vendor’s maturity.
Focus on cost-effectiveness, not cost
A fully managed operational center holds great promise in terms of lower development expenses and ease of management. However, only a few deals grow into worthwhile investments, and the ODC model is no exception. Low-cost labor is often a key element of price calculations, yet is not the only one to help assess the viability of the offshore development center idea.
In some cases, procurement, project management, travel, and other hidden costs may backfire and get your cost gains to zero. So, the key to landing the right development partner is to understand the value you expect to generate from the offshore center and to correlate this value with the involved effort and investment.
Going beyond cost borders with offshore software development center
The competitive market dynamic cripples any business that isn’t fast enough to adapt and accelerate growth. To maintain a competitive edge, companies accelerate their technological initiatives and supplement traditional services with digital-first experiences.
However, digital transformation is a costly journey unless taken to a more affordable setting. Offshore development centers help companies innovate and scale their technological offers at lower costs and less administrative hassle.
But despite the outward glitter, an ODC idea has a specific application area and doesn’t cater to all needs. Large-scale projects, niche skills, high-security requirements, and clear economic gain in your particular situation should be the main precursors to setting up a fully operational center in another country.
Originally published on instinctools.com