Offshore Delivery Center: The Definitive Guide

The practice of offshoring has become increasingly prevalent among businesses seeking competitive advantage in a global marketplace. This trend extends beyond large corporations to encompass businesses of all sizes, including startups and SMEs. By shifting focus away from in-house IT departments to offshore delivery centers (ODCs), companies can leverage lower labor costs and access a diverse pool of skilled professionals, enhancing their operational efficiencies and focusing more on core business strategies.

As companies increasingly outsource their entire IT operations, the benefits of establishing an ODC become clear. This strategy not only reduces costs but also offers scalability and access to new technologies, allowing businesses to focus on innovation and growth without the burden of managing day-to-day IT tasks.

In this article, Mr. Harry Nguyen – CEO of TECHVIFY will show you why setting up an Offshore Delivery Center is a strategic move for businesses at any stage of growth. We’ll examine the advantages an ODC can provide and discuss how implementing this approach can lead to significant improvements in efficiency and competitive positioning. Stay tuned to understand why an offshore delivery center might be the key to unlocking your business’s potential.

1. What Is an Offshore Delivery Center (ODC)?

An Offshore Delivery Center (ODC) refers to a remote IT department established by a company in a foreign country to handle specific business tasks. This dedicated team is structured with necessary roles and headcounts that are tailored to match the unique needs and requirements of the business.

Functioning as an integral part of the organization despite geographical distance, an ODC is primarily focused on IT-related activities. It can efficiently manage a wide range of functions from software development to complete IT project oversight, providing cost efficiencies and access to a broad talent pool while aligning closely with the company’s goals and standards.

2. Key Benefits of Establishing an Offshore Delivery Center

Setting up an Offshore Delivery Center (ODC) can be a game-changer for businesses aiming to boost their efficiency and spark growth. It’s like tapping into a global pool of talent and cutting-edge technology, which can significantly sharpen your company’s competitive edge in today’s fast-paced digital world.

In this section, we’ll walk through the top benefits that an ODC brings to the table. From substantial cost reductions to enhanced scalability and innovation, discover how an ODC can be a powerhouse driving your business forward. Let’s dive in and explore how this strategic move could make a big difference for your organization.

2.1. Enhanced Focus on Core Business Activities

By establishing an Offshore Delivery Center, companies construct a complete department tailored to their specific needs, rather than integrating individual hires into existing teams. This structured setup boosts productivity and flexibility, as the offshore team is immediately aligned with the company’s operational goals and culture.

• Streamlined Integration: Build a department from the ground up, designed to integrate seamlessly with company processes and culture.
• Immediate Productivity: Avoid the ramp-up time typical with new individual hires; offshore teams can operate at full capacity from the start.
• Customized Team Structure: Tailor the roles and expertise of the offshore team specifically to the strategic needs of the business.

2.2. Cost Efficiency

Setting up an Offshore Delivery Center provides significant cost advantages that impact the bottom line. By operating in regions with lower labor and operational costs, organizations can better manage their budgets and allocate resources to strategic growth areas.

• Lower Labor Costs: Reduce salary and benefits expenses significantly compared to local rates.
• Reduced Operational Expenses: Decrease spending on office space, utilities, and technology infrastructure.
• Budget Reallocation: Utilize savings to fund innovation, enhance product quality, or expand into new markets.

2.3. Access to Specialized Talent

Access to a global talent pool through an ODC allows companies to source specific skills and expertise quickly and efficiently, which is often challenging to find locally. This advantage is critical for businesses needing to stay ahead in technology and innovation.

• Specialized Skills: Access a wide range of specialized IT skills and technological expertise.
• Scalability: Easily scale operations up or down based on business requirements and project demands.
• Quality Enhancement: Leverage global talent to enhance the quality of products and services, adopting international best practices and innovations.

2.4. Round-the-Clock Productivity

Operating an Offshore Delivery Center in a different time zone can significantly extend a company’s productive hours. This enables a continuous work cycle, where work can be handed over across different time zones to maintain momentum on projects.

• Extended Business Hours: Achieve a 24-hour work cycle that keeps projects moving forward even after the primary office has closed.
• Faster Project Delivery: Utilize the time difference to expedite project timelines, allowing for quicker turnaround times.
• Operational Flexibility: Adjust work schedules to meet critical deadlines and respond promptly to client needs.

2.5. Risk Mitigation

Diversifying operations geographically by setting up an ODC can also serve as a risk management strategy. It spreads business operations across multiple locations, reducing dependency on one single market or operational hub.

• Geographical Diversification: Mitigate risks associated with local market fluctuations, political instability, or economic downturns.
• Continuity Planning: Ensure business continuity by having multiple operational sites capable of supporting each other in case of disruptions.
• Regulatory Compliance: Benefit from different regulatory environments, which might offer more favorable conditions for certain business activities.

2.6. Cultural and Market Insights

Establishing an ODC in a foreign market not only provides staffing benefits but also offers valuable insights into local markets. This can be particularly advantageous for companies looking to expand their reach or improve their service offerings in international markets.

• Local Expertise: Gain an understanding of the cultural nuances and consumer behavior in new markets.
• Market Expansion: Use insights gained from the offshore team to tailor products and marketing strategies to local tastes and preferences.
• Enhanced Customer Support: Provide support in local languages and during local business hours, improving customer satisfaction and engagement.

2.7. Innovation and Collaboration

Establishing an Offshore Delivery Center can foster an environment of innovation and collaboration by combining diverse perspectives and expertise. This setup encourages the sharing of ideas and best practices across borders, leading to enhanced problem-solving and creative solutions.

• Cross-Cultural Collaboration: Encourage interaction between diverse teams, which can lead to innovative ideas and approaches not typically seen in a homogenous work environment.
• Technology Transfer: Leverage advanced technology and expertise from the ODC to the parent company and vice versa, enhancing overall technological capability.
• Continuous Improvement: Utilize the diverse expertise and feedback from the offshore team to refine processes and methodologies continuously.

2.8. Scalability and Flexibility

An Offshore Delivery Center offers remarkable scalability and flexibility, enabling businesses to adjust their operations based on current needs and market conditions without the constraints of local resources and capabilities.

• Dynamic Resourcing: Scale your workforce up or down quickly based on project requirements and business cycles without the long-term commitments required in local hiring.
• Adaptive Models: Adapt to changing business demands more fluidly, with the ability to implement new processes and technologies without disrupting your core operations.
• Cost-Effective Growth: Expand your business operations and enter new markets without the significant upfront investments typically associated with setting up additional physical locations or hiring large numbers of local employees.

2.9. Ease of Management

An Offshore Delivery Center simplifies management processes by reducing the complexities typically associated with traditional employment. Structured management practices and advanced communication technologies enable efficient oversight and integration of offshore teams without the need for constant direct supervision.

• Streamlined Operations: Benefit from established processes and infrastructures that facilitate smooth operations and management of offshore teams.
• Advanced Communication Tools: Utilize modern communication technologies that ensure seamless interaction and coordination between domestic and offshore teams.
• Reduced Administrative Burden: Minimize the need for handling day-to-day administrative tasks such as payroll, HR issues, and local compliance, as these are often managed by the offshore partner.

2.10. Enhanced Competitive Advantage

Leveraging an Offshore Delivery Center can significantly enhance a company’s competitive edge by combining cost efficiency with access to specialized skills and round-the-clock productivity. This strategic approach not only improves operational capacities but also positions the company better in global markets.

• Faster Time-to-Market: Speed up product development and launch cycles by utilizing the continuous work environment of an ODC.
• Access to Global Markets: Use the offshore location as a springboard to test and enter new markets with reduced risk and investment.
• Superior Service Offerings: Enhance service offerings with the added capabilities and insights gained from a globally diverse team.

3. Step-by-Step On How To Set Up an Offshore Delivery Center

Setting up an Offshore Delivery Center (ODC) involves a structured approach to ensure alignment with business objectives and operational efficiency. Here is a detailed guide to establishing an effective ODC:

3.1. Defining Your Needs and Goals

The first step in establishing an offshore development center is a thorough assessment of your company’s requirements and objectives. This involves a critical evaluation of the following:

• Scope of Work: Define the specific tasks and projects that the ODC will handle.
• Ideal Location: Choose a location that offers a blend of skill availability, cost efficiency, and political stability.
• Team Size and Skillset: Determine the scale of the operation and the expertise required from the offshore team.
• Budget Considerations: Establish a clear budget that includes setup costs, operational expenses, and contingency funds.
• Control Levels: Decide the degree of control and oversight the parent company will maintain over the ODC.
• Expected Outcomes: Clearly articulate the goals and results expected from the offshore operations.

Having clear, well-defined goals and requirements will guide the decision-making process and help in selecting the right offshore development center model.

3.2. Conducting a Feasibility Study

A feasibility study is crucial to evaluate the viability of establishing an ODC. This study should cover:

• Technical Feasibility: Assess the technological infrastructure needed for the ODC to function effectively.
• Economic Feasibility: Analyze the financial aspects, including potential cost savings and ROI.
• Legal Feasibility: Examine the legal requirements and implications of setting up an ODC in the chosen location.
• Operational Feasibility: Determine the operational logistics, from hiring processes to daily management.
• Schedule Feasibility: Establish a realistic timeline for setting up and operationalizing the ODC.

This comprehensive assessment helps in identifying potential challenges and opportunities, ensuring that the setup is practical and aligned with business strategies.

3.3. Choosing a perfect Location

Selecting the right location is critical for the success of your ODC. Factors to consider include:

• Technical Expertise: Ensure the region has a sufficient pool of talent with the necessary technical skills.
• Cultural Fit: Consider cultural compatibility to facilitate smoother communication and collaboration.
• Economic Stability: Look for locations with political stability and low risk of economic fluctuations.
• Cost Efficiency: Evaluate the cost of living, wage levels, and operational costs in potential locations.
• Infrastructure: Check for reliable internet connectivity, technological infrastructure, and educational institutions that can supply continuous talent.

Choosing a strategic location not only impacts operational efficiency but also plays a role in the ODC’s long-term sustainability and integration with the parent company.

3.4. Navigating through Legal and Compliance Issues

Establishing an offshore development center requires a thorough understanding of the local legal framework. This includes employment laws, tax codes, data privacy regulations, and more. Early identification and compliance with these laws prevent legal complications and unexpected costs.

To effectively align with local regulations, companies typically engage local legal experts or consultancies. These professionals provide crucial insights into the country’s legal landscape, including labor laws, tax implications, foreign direct investment regulations, and other pertinent legal matters. This foundational legal groundwork is essential to ensure smooth and compliant operations.

3.5. Establishing a Company or Partnering with a Vendor

Companies looking to set up an offshore development center have two primary options: establish a new entity or partner with an existing ODC vendor.

• Establishing a New Entity: This process involves selecting a location, hiring legal experts to manage compliance and administrative tasks, and registering the business as a legal entity in the host country. This approach gives companies full control over their offshore operations but requires significant investment in infrastructure, legal compliance, and human resources.
• Partnering with a Vendor: Collaborating with an established ODC can streamline the setup process. This option provides advantages such as quicker recruitment, reduced administrative burden, enhanced scalability, and risk mitigation. Companies can leverage the vendor’s established infrastructure and expertise, saving on costs related to physical space and operational setups.

When choosing a vendor, it’s critical to assess their cultural compatibility, track record, client testimonials, and operational expertise to ensure they align with your business goals and quality standards. Initial discussions about project goals, product ideas, and expectations can also help ascertain the vendor’s suitability and reveal any potential communication hurdles.

3.6. Ensuring Proper Infrastructure Setup

Whether choosing to operate independently or through a vendor, establishing robust infrastructure is critical for the effective functioning of an offshore development center. This includes:

• Physical Infrastructure: Secure and functional office space equipped with essential IT hardware and software, reliable internet connections, power backups, and adequate security measures.
• Operational Infrastructure: Systems for human resources, payroll, IT support, and project management that align with both local regulations and company standards.

3.7. Building the Remote Team

Building a competent team is crucial for the success of an offshore development center, and the approach varies depending on whether a company establishes the center independently or partners with a vendor.

• Independent Setup: Companies setting up their own ODC need to form a dedicated recruitment team. This team is responsible for crafting clear and compelling job descriptions, sifting through applications, and conducting interviews to ensure candidates not only possess the required technical skills but also fit the company culture.
• Partnering with a Vendor: When working with an established ODC, the process simplifies significantly. The company specifies the professional requirements, and the vendor quickly provides profiles of pre-vetted candidates. This streamlines the hiring process and provides access to a broader talent pool.

In both scenarios, it’s vital to thoroughly assess candidates’ soft and hard skills, educational background, and compatibility with the company’s culture and communication style.

3.8. Training and Onboarding

Effective integration of offshore team members is pivotal. Companies should:

• Welcome Initiatives: Make efforts to integrate offshore team members with the in-house team, ensuring they are clear on their roles and know whom to approach for assistance.
• Training Programs: Implement training sessions, mentoring, and regular feedback to foster a collaborative environment.
• Collaboration Tools: Deploy tools like Asana, Trello, or Slack to enhance productivity and streamline communication. These tools are essential for task management, role assignment, and daily operational challenges.

Prompt and comprehensive onboarding and training are indispensable for nurturing a cohesive team and addressing any cross-cultural or procedural challenges.

3.9. Establishing Communication Channels and Procedures

Robust communication frameworks are essential for managing an offshore team effectively. Key strategies include:

• Diverse Communication Tools: Utilize a mix of communication channels such as emails, instant messaging, and video conferencing to ensure clarity and continuous dialogue.
• Regular Updates: Schedule regular meetings using video conferencing to foster a sense of inclusion and immediacy.
• Project Management Software: Tools like Jira, Asana, or Trello can significantly enhance project management efficiency by facilitating better task tracking, communication, and collaboration.

Investing time in setting up and optimizing these communication channels and protocols is crucial to mitigate misunderstandings, prevent delays, and ensure the success of the offshore development center.

3.10. Monitoring and Adjusting

Continuous monitoring and adaptation are key to maintaining high performance at an offshore development center. Effective strategies include:

• Performance Metrics: Track individual and team performance metrics such as productivity rates, bug fix rates, and other relevant KPIs.
• Feedback Loops: Establish regular feedback mechanisms to gather insights and make informed adjustments.
• Code Reviews and Quality Checks: Conduct periodic reviews to ensure the code meets quality standards and fulfills functional requirements.

4. Offshore Delivery Center vs. In-House Team: Comparing the Models

When it comes to expanding your company’s development capabilities, you’re likely considering whether to invest in an offshore delivery center (ODC) or to bulk up your in-house team. Both approaches have their unique sets of benefits and challenges. Understanding these can help you determine which option aligns best with your business strategy and operational needs. Let’s dive into the differences between an offshore delivery center and an in-house team to see what might work better for you.

Conclusion

From cost savings and access to a global talent pool to scalable resources – it’s clear that ODCs can be a strategic asset for businesses aiming to optimize operations and expand globally. With the ability to efficiently manage projects while mitigating common challenges through careful planning and communication strategies, the question isn’t whether to opt for an ODC, but rather why wait? Embracing an offshore delivery center now could be the pivotal step your company needs to achieve greater flexibility, enhanced capabilities, and a competitive edge in the market.