The demand for offshore development is increasing in the Vietnamese IT industry due to a labor shortage. In the midst of this, offshore development centers (ODCs) seem to be attracting the attention of many companies as a way to significantly reduce costs. According to one statistic, offshore development centers in Vietnam alone have saved organizations an estimated $200 billion. In this article, we will introduce offshore development centers.
What is Offshore Development Center (ODC)?
Offshore Development Center (ODC) is an offshore talent pool that provides software development services to any company in other countries. Simply put, it is a subsidiary of a company operating in another country. Usually, the ODC is located in a country with lower costs and good access to talent.
To reduce the responsibilities of the main unit, ODC companies often provide technical experts (developers, testers), managers (PM, PO, SM), designers (UX, UI), business analysts, HR, sales staff, account managers responsible for developing the strategy of the partnership. In addition, the provider provides their people with all the equipment and infrastructure necessary for them to effectively perform their work for the customer and develop their capabilities, minimizing costs related to equipment/office and developing a team of experts.
Model for operating ODC
There are two main ways to operate an ODC.
- In-house operation: A model in which a company establishes and operates its own development center.
- Contract with local companies: This is a model in which a contract is made with a local development company and development work is outsourced.
There are some key differences between the two approaches:
- Location: While remote work is an option for in-house teams, most U.S. tech workers remain office-bound—56% working partially and 32% fully in-office. This means your in-house team will likely operate from your existing locations. On the other hand, an ODC is typically situated over four time zones away, as the term "offshore" implies.
- Costs: Hiring in-house staff involves significant overhead, including recruitment expenses, benefits, payroll taxes, office space, and equipment. Real employment costs often range from 1.3 to 1.5 times the base salary. Conversely, while ODCs may have similar costs, they are generally lower offshore, especially if you rely on a partner to manage the ODC, eliminating concerns like payroll taxes.
- Speed: ODCs offer faster team assembly. Local vendors often maintain a talent pool, enabling you to build your team quickly compared to the lengthy in-house recruitment process.
- Involvement and Commitment: Despite being offshore, ODC teams can deliver in-house-level commitment. They work exclusively for your business, ensuring high alignment with your goals and seamless collaboration.
Comparing ODC to Outsourcing
This comparison effectively presents the core distinctions between outsourcing and offshoring. It's concise and clearly structured, offering a quick grasp of the concepts. Here's a slightly polished version for clarity and consistency:
The benefits of offshore development center
Significant reduction in operational costs
Companies that use the services of offshore development centers can save a significant amount by paying less for IT talent. For the same amount, it would be difficult to maintain an in-house team with the latest technology expertise. Instead, when using an offshore development center, not only do you pay less for IT talent, but you also eliminate the time and money required to recruit, hire, and train employees.
Depending on the nature of the project, a properly managed ODC can reduce costs by 40-80%. For example, labor costs in Vietnam are only 1/3 to 1/2 of those in others. This is the result of taking advantage of Vietnam's cheap labor force without sacrificing quality or expertise. For you, using an offshore software development company also allows you to reduce your capital expenditures
Securing highly skilled human resources
Well-known offshore development countries such as India, China, and Vietnam have long-standing relationships with Vietnamese companies, so they understand the peculiarities of the Vietnamese market and can understand which solutions and services will meet the needs of their customers. Furthermore, they have experienced IT personnel who are well-versed in cutting-edge technology and other IT technologies, ensuring high-quality finished products.
For example, project requirements can be adjusted by up to 30% during development (often with additional costs), and team sizes can be scaled up or down by 20-50% based on project demands. Additionally, 60% of ODCs report accommodating changes to project timelines, allowing for better alignment with business goals.
Highly flexible
Offshore development centers have high flexibility. ODC strives to provide a finished product that meets the customer's requirements in order to maximize customer satisfaction. In ODC, the initial requirements and specifications can be changed (in which case additional costs will be incurred), the number of development team members can be increased or decreased, and even the project timing can be changed (potentially incurring additional costs). Moreover, the IT personnel who participate in ODC are highly capable of adapting to cutting-edge technologies, allowing them to flexibly respond to customer requirements.
High security
Reputable ODC service providers prioritize stringent security measures to protect customer data and intellectual property. For instance, over 90% of leading ODC companies implement physical access restrictions, and 85% use advanced firewalls and encrypted communication to safeguard networks. Some companies even employ ISO-certified security protocols, ensuring compliance with international standards. These robust measures guarantee the confidentiality and integrity of customer solutions throughout the development process.
Tips for using an offshore development center
Create a detailed brief for your ODC
A successful offshore development center (ODC) begins with a precise and detailed brief. Start by defining your business needs and project goals—clarify whether you're aiming for a small team of 5-10 members or scaling up to a 50+ member operation. Establish a clear budget, allocating funds for infrastructure (e.g., $5,000-$10,000/month for office space and equipment), salaries (e.g., $12,000-$25,000 per developer annually, depending on location), and management.
Identify the team structure, specifying required roles such as developers, QA engineers, and project managers, as well as the technical skills they must possess (e.g., Java, Python, AI expertise). Define the scope of work, including deliverables, timelines, and key performance indicators (KPIs), like cost savings of 20% or faster project delivery by 15%. A well-crafted brief aligns expectations, streamlines setup, and lays the groundwork for seamless collaboration and success.
Choose a trusted vendor
One of the factors that leads to the success of an offshore development center is working with a good vendor. Therefore, a good vendor that provides offshore development center services must meet the following elements. First, in terms of technology, you should ensure that there are many people who are familiar with IT technology and IT languages, and that they have a high ability to adapt to advanced technology.
Second, in terms of the vendor's track record, it is better to choose a vendor that has been active in the offshore development industry for a long time, especially one that has been working with Vietnamese companies for a long time. These vendors will understand Vietnamese culture to some extent and know how to break down language and cultural barriers.
Finally, if a vendor has experience and know-how in your industry, it will be a good choice. This is because the challenges differ depending on the industry. For the same cost reduction challenge, in the case of the retail industry, you can start by optimizing in-store operations, while in the manufacturing industry, you can use methods to optimize production lines and warehouse management.
So, if a vendor can explain the use cases related to your industry, you can choose this vendor. Also, a vendor that meets all the elements should definitely be ranked high in the offshore development rankings. If a company has never used an offshore development center, it is better to refer to the offshore development rankings first.
Study ODC's country law and regulation
Understanding the legal framework of the ODC’s host country is non-negotiable. Familiarize yourself with employment laws (e.g., mandatory benefits or labor rights), tax obligations (e.g., corporate tax rates of 10-20%), data protection laws like GDPR compliance, and intellectual property regulations to avoid risks.
Engage with local legal experts or consultants to navigate complex regulations and remain updated on potential changes. For example, Vietnam requires data localization for certain sectors, and tax incentives may vary by region. A thorough understanding of these aspects ensures legal compliance, mitigates risks, and fosters smoother operations, building trust with local authorities and your ODC team.
Negotiation of terms
The more clear the objectives, requirements and specifications are in the upstream process, the fewer bugs there will be. As mentioned above, ODC allows you to change the initial requirements and specifications, so it is suitable for those who do not know what they really want. In theory, you can change it many times, but since additional costs will be incurred, it is better to minimize the changes as much as possible.
Therefore, even if you cannot explain the requirements and specifications in detail, it is better not to change the basic requirements. Also, in the case of changes to the requirements and specifications or the number of team members, you must determine from the beginning how much additional costs will be, how they will be settled, and what to do when you want to make changes.
When consulting, if you decide on the frequency and tools of meetings, both sides can grasp the information more easily. For example, both sides can discuss the progress overview situation for about 15 minutes every 2-3 days, report the progress situation once a week, and report the completion status of the project once a month. Meetings are necessary because you cannot see the face of the development team of the client. However, you should pay attention to making each meeting convenient.
Set up infrastructure and contact channelss
Creating a solid infrastructure and establishing clear communication channels is crucial for the success of an offshore development center (ODC). Ensure your ODC is equipped with at least 5 essential tools, secure systems, and modern technologies to operate efficiently. Define communication protocols with at least 3 types of meetings, implement 4 reporting tools, and establish 2 escalation processes to ensure seamless collaboration across teams.
Create remote team
Building a high-performing remote team begins with sourcing the right talent. Partner with a vendor who has access to a broad pool of specialists-ideally 10+ candidates per position-to ensure the best fit for your business needs. Once your team is selected, focus on onboarding by providing 5 core training sessions, creating detailed documentation, and clarifying at least 3 key roles to ensure smooth integration into your operations.
Monitor efficiency
Continuously monitor your ODC’s performance using a combination of at least 6 tailored KPIs that reflect your objectives, such as project delivery timelines, quality benchmarks, and cost-efficiency metrics. Utilize 5 project management tools, conduct at least 4 regular performance reviews, and maintain transparency through regular feedback loops to ensure sustained productivity.
The popular destination for offshore development service
Let’s explore the top destinations for offshore development services, highlighting their strengths, challenges, and suitability for different types of projects.
Challenges in collaborating with an ODC and proposed solutions
Failure due to lack of communication
One of the biggest challenges in offshore development is lack of communication. Different languages, time zones, and cultural differences can make it difficult to communicate. This can affect the progress and quality of development, making it easier for problems to occur. As a countermeasure, it is important to use project management tools and regular online meetings to thoroughly share progress and issues. It is also necessary to standardize communication in a common language (such as English) and make efforts to ensure that messages are conveyed accurately.
Troubles caused by unclear requirements
One of the most common failure points in offshore development is when the requirements definition is insufficient. If the developer does not understand the results the client expects, the delivered product will often be disappointing. In order to communicate the requirements accurately, detailed documentation, prototyping, and ongoing feedback are essential. Furthermore, since ambiguous requirements can lead to major problems later on, it is important that the client and the development team have a common understanding at the very beginning.
Lack of quality control and its impact
Quality control in offshore development is important, but it can be overlooked in favor of cost reduction and deadlines. This can lead to a decline in development quality and ultimately increased revision costs. In order to thoroughly control quality, it is effective to place emphasis on the testing phase and conduct staged reviews and tests during development. By incorporating regular quality checks and code reviews and discovering and resolving problems early, you can prevent future rework.
Delays due to time zone differences
In offshore development, the difference in time zone between Vietnam and the country where the development team is located can affect the progress of the project. For example, even if urgent corrections or confirmations are required, delays are likely to occur because they cannot be responded to immediately. To avoid this, it is necessary to adjust schedules and prepare an emergency response system that takes time differences into account. It is also important to find a time when the team can easily work together and take advantage of the flexibility of remote work to respond quickly.
EDUTO Software - The best Offshore Development Center (ODC)
Cost reduction: Utilizing an ODC can lead to cost savings of up to 40% compared to onshore development. This is achieved through:
- Lower Labor Costs: Labor costs can be reduced by 30-50% due to favorable exchange rates.
- No Overhead Costs: Clients avoid expenses related to maintaining a physical workplace, recruitment, and training.
High-quality talent: We conduct rigorous testing, with only 10% of applicants passing our selection process. Continuous skill assessments ensure that our team consistently meets project requirements, resulting in a 95% client satisfaction rate with delivered products.
Adaptability: We can adjust team sizes quickly, providing immediate substitutes (6-7 personnel) when needed. Our teams have a 100% backup availability, ensuring that projects remain uninterrupted even during personnel changes.
Effective operations: We conduct regular meetings and progress reports, with weekly updates to ensure transparency and smooth communication. Personnel are assigned to support projects on-site at client locations, enhancing collaboration.
Project Management Methods
EDUTO employs Agile methodology, specifically Scrum, which divides development into iterative steps:
- Each iteration lasts two weeks, allowing for rapid feedback and adjustments.
- This approach has been shown to improve project delivery times by up to 30%, maximizing customer satisfaction.
In summary, EDUTO's ODC offers substantial cost savings (up to 40%), access to high-quality talent (with a 95% satisfaction rate), adaptability in team management (with 100% backup availability), and effective project oversight through Agile methodologies, making it an optimal choice for businesses seeking efficient development solutions.
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