What is an offshore development center?
‘An offshore development center is a business model used by managed IT service providers to engage remotely with organizations to solve their IT development-related challenges with smooth functionality and fewer frictions.’
Offshore development center(ODC) model is being used by many managed IT service providers all over the globe. Organizations of every size, large or small can leverage cost-effective services from these providers. The popularity of this business model is shown in the figures. In 2018, the market size of ODCs was $85.6 billion. The major contributor to this market is, India. Offshore development centers in India are among the top outsourcing providers using the ODC model. In a study by Deloitte Global Outsourcing survey 59% of companies outsource the development process to cut the cost and 57% of them agreed that this approach enabled them to focus more on their core business.
Benefits of ODC engagement model
Almost every organization is looking to outsource some of the tasks which are not from the core competency and can reduce the cost. These tasks can be accounting, Human resource management or software development. There are some best practices for outsourcing. However, the success of outsourcing depends on the right engagement model. In the case of IT outsourcing, ODC is the most popular model among businesses. There are advantages of establishing an offshore development center:
- Reduced Cost of Operating
- High ROI
- Speed-up Development
- Access to a Larger Talent Pool
- Enhancing Innovation
Risks of ODC engagement model
There are very few specific risks involved in the ODC model for outsourcing IT requirements. Other risks are largely perceived. The elimination of risks involved is mostly dependent on the level of transparency between the service provider and the client. Experienced vendors and clients can easily handle these risks through mutual preparations. The success of the ODC model largely depends on the involvement of the team, alignment of business values and transparent collaborations. With proper insights into risks involved and ways to handle them can save both parties and ODC can prove itself beneficial in terms of reducing cost and maximum return on investment. The few risks that are involved in any kind of outsourcing model are:
- Organization Risks
- Control Risks
- Security Risks
- Performance Risks
Beginning With Offshore Development Center
The success of offshore development centers is backed by statistics. The experience is different for every business, depending on their approach. Despite all the data saying ‘It’s a good decision’, it is advised to do some more research on what is the unique requirement of your organization. You can use the following tips, to begin with, ODC:
- Have clarity on ‘how’ and ‘why’ your organization is considering the ODC model for outsourced services. Define your visions and goals you are hoping to reach. If there is a clarity of reasons to use this model, there is a success.
- Research about best service providers, the best offshore location and the best value stream. India is one of the top destinations to start with an offshore development center, along with the Philippines, Vietnam, and Ukraine.
- Set your expectations from your service provider. Get in touch with them closely to understand their organizational culture, if that resonates with yours. Keep your in-house team ready for this new transition. Prepare them to be flexible and adaptive.
- Start with small tasks and monitor. Create an effective communication channel for both teams. Build trust and looks for ways to build fruitful relations with the vendor in the beginning. This will give your organization long term advantages.
- Be prepared for risks. Protect your self with proper documentation of intellectual property rights and contract terms. Having transparency can mitigate the risks involved in ODCs.
- If you are considering ODC than one of the reasons is reduced cost. You can invest a little more in the proper use of tools for communications, documentations, time and resource management.
Offshore Development Center model has its benefits and risks. Choosing to work with an offshore development center is an important part of the strategy if you are a start-up. The offshore model can bring agility in the development process for your organization and build a partnership between the vendor and the client. ODC service providers have leveraged this model to build high client satisfaction and long-lasting relations with them. 68% of businesses that are using outsourced services will continue to do so. The success of the ODC model is one of the contributing factors for that. Many Fortune 500 companies have already begun to use offshore development as a cost-effective way to fulfill development staffing requirements. Smaller companies are likely to follow suit in the near future.