Quick Summary:
An Offshore Development Center (ODC) offers businesses a way to tap into global talent pools, reducing costs by setting up dedicated software teams in strategic locations.
Identifying the ideal location and managing logistical, legal, and cultural challenges are key to achieving optimal results.
This article highlights the pros and cons of ODCs, contrasts them with outsourcing and in-house development models, and outlines a practical approach to building your own ODC.
What is ODC?
An Offshore Development Center (ODC) is a dedicated facility in a distant location, typically more than three time zones away, where a specialized development team operates. This center includes office space, on-site administrative staff, and all necessary equipment and infrastructure to support its activities. The term ODC can also refer to a Nearshore Development Center, where the setup and purpose are similar. However, in a nearshore arrangement, the team and office are located closer, usually within three time zones. The primary distinction between offshore and nearshore centers lies in the time overlap with the in-house team, which is typically greater for nearshore centers. Additionally, nearshore development centers generally come with higher costs compared to their offshore counterparts.
To make things clearer, here’s a detailed comparison of offshore teams, onsite specialists, and management models:
TERM
OFFSHORE DEVELOPMENT CENTER (ODC)
A dedicated team or facility located in another country for software dev
NEARSHORE DEVELOPMENT
Similar to offshore but located in a neighboring or nearby country.
OUTSTAFFING
Hiring remote developers to work exclusively for your company but managed externally.
IDEAL PROJECT TYPE
Long-term strategic projects, cost savings.
Projects needing overlapping time zones.
Full-time roles without employment overhead.
ADVANTAGES
Scalability, access to global talent, cost efficiency.
Scalability, access to global talent, cost efficiency.
Direct control, cost-effective, flexibility.
LIMITATIONS
High setup costs, cultural/language barriers, requires governance.
Costs higher than offshore, limited talent pool.
Developers, QA engineers, PMs, architects.
TEAM COMPOSITION
Developers, QA engineers, PMs, UX/UI designers.
Developers, QA engineers, PMs.
Developers, QA engineers, sometimes designers.
MANAGEMENT ROLES
Provider-side PM manages team remotely; Client-side PO oversees high-level project alignment.
Provider-side PM manages overall work, Client-side PO coordinates collaboration.
Client-side PM handles project management; Provider-side HR assists with staff logistics.
Here are five key characteristics that define the ODC model
Customized to Your Needs: ODCs are designed to align with your specific requirements, offering tailored security measures, team composition, infrastructure, and project management practices to suit your preferences.
Designed for Long-Term Engagements: ODCs are built to support long-term development efforts, such as ongoing maintenance and updates of existing products, enhancing your development capabilities over time.
Flexible and Scalable: The model allows for the adjustment of team size and the scope of work as needed, enabling you to scale up or down according to project demands.
Self-Contained Operations: ODCs come with all necessary administrative staff, covering areas like tax, HR, and project management, ensuring the center operates independently.
Dedicated to Your Business: The development team within an ODC is fully dedicated to your projects, working exclusively for your business, which enhances their commitment, engagement, and proactive involvement.
Contractor vs Customer ODC Model
MODEL
Contractor ODC Model
Customer ODC Model
DESCRIPTION
–The ODC is owned and managed by a vendor.
–The vendor handles local infrastructure, security, operations, office space, and recruitment.
–Product or project management can be delegated to the vendor under a managed services/delivery model.
–The client owns the ODC, similar to a company branch.
–The client manages operations, including recruitment, although local vendors may assist.
–Typically suitable for large enterprises.
–Clients maintain full control over security, compliance, and product development.
Both models ensure that the ODC functions as a secure perimeter managed according to the client's rules and requirements.
7 Benefits of Offshore Development Center Services
BENEFIT
Enhanced Risk Mitigation and Security
Access to the Global Talent Pool
Cost Savings
Facilitated Recruitment and Management
Local Expertise
Continuous Coverage
Full Control
Over Every Aspect
DESCRIPTION
- Provides ultimate control over security and risk management protocols.
- Allows you to set specific network security standards, local infrastructure protocols, and ensure business continuity.
- Ideal if security and compliance requirements are met in the offshore location.
- Offshoring removes geographical constraints, speeding up recruitment.
- Expands your search to experts in emerging technologies like deep learning, computer vision, and extended reality.
- Offshore service vendors handle recruitment, management, and local compliance, saving you time and resources.
- You can focus on the final hiring decisions while the vendor handles the administrative burden.
- Offshore service vendors handle recruitment, management, and local compliance, saving you time and resources.
- You can focus on the final hiring decisions while the vendor handles the administrative burden.
- ODC members can help localize your product, conduct market research, and adapt product design to local trends.
- Provides insights into navigating the market or region where the ODC is located.
- ODCs provide round-the-clock business continuity.
- Enables faster time-to-market and consistent support and maintenance.
- ODC teams can quickly respond to security incidents and ensure operations are always running.
- In customer-owned ODCs, you have complete control over operations, processes, and standards.
- Customize the ODC to your needs, including security protocols, quality standards, and communication practices.
- In vendor-owned ODCs, vendors handle the operational aspects.
Both models ensure that the ODC functions as a secure perimeter managed according to the client's rules and requirements.
Challenges of Working with an Offshore Development Center (ODC)
CHALLENGE
Security and Intellectual Property Risks
Talent Quality and Retention
Communication Gaps and Misunderstandings
Cultural Gaps
Significant Time Zone Difference
Knowledge Transfer
SOLUTION
- Conduct a security risk assessment before setting up an ODC
- Implement strict data protection policies for data sharing
- Sign non-disclosure and non-compete agreements, and include intellectual property clauses in contracts
- Conduct technical interviews to screen developers and professionals, even if vetted by your ODC partner
- Offer competitive compensation packages and growth opportunities to retain talent and reduce turnover
- Establish clear communication channels
- Schedule regular meetings to ensure alignment
- Ensure requirements and messages are clear and easy to understan
- Ensure team members are proficient in English or other preferred languages
- Choose an ODC partner experienced with companies from your region
- Define when synchronous communication is necessary; otherwise, use asynchronous tools
- Use knowledge transfer frameworks to minimize unnecessary back-and-forth between teams
- Maintain a comprehensive internal knowledge base or wiki with contributions from both in-house and ODC teams
- Ensure the code is well-commented and includes a complete set of test cases
8 Key Aspects of Setting Up an Offshore Development Center
ASPECT
Define Your Needs and Goals
Consider Feasibility
Settle on the Ideal Location
Decide on the DIY vs. Vendor Approach
Set Up the Infrastructure
Select the Team
Onboard the Team
Monitor Performance
DESCRIPTION
- Provides ultimate control over security and risk management protocols.
- Allows you to set specific network security standards, local infrastructure protocols, and ensure business continuity.
- Ideal if security and compliance requirements are met in the offshore location.
- Conduct a feasibility analysis covering opportunities, strengths, weaknesses, and threats.
- Assess talent availability, legal and compliance restrictions, potential risks, and financial costs.
- Compare locations based on expertise, security and compliance, labor and infrastructure costs, cultural differences, time zone, connectivity, exchange rates, geopolitical.
stability, and English proficiency.
- Decide whether to set up the ODC yourself (handling legal, accounting, recruitment, etc.) or partner with a vendor like Luxoft to manage these tasks.
- Ensure the infrastructure supports productivity and security.
- Consider backup systems, network security, and access control for sensitive data and premises.
- If managing the ODC yourself, handle recruitment, screening, interviewing, and selection.
- Alternatively, leverage an ODC partner’s talent pool for a more efficient process.
- Ensure the team aligns with your operations, values, standards, and protocols.
- Clearly define communication tools, roles, responsibilities, and knowledge management practices during onboarding.
- Establish key performance indicators (KPIs) to measure the team’s success.
- Communicate these metrics to the ODC team and regularly track their performance to ensure goals are being met.
7 offshore product development locations to consider
If you’re not certain where to start with your location selection, here are the five prominent offshoring destinations for businesses based in the US and Western Europe that you may want to consider for your offshore development center:
COUNTRY
Armenia
Bulgaria
India
Malaysia
Poland
Romania
Ukraine
TIME ZONE
UTC+04:00
UTC+02:00
UTC+05:30
UTC+08:00
UTC+01:00
UTC+02:00
UTC+02:00
Conclusion
Establishing an offshore development center (ODC), whether through a customer-owned or contractor-based model, offers businesses a powerful way to enhance their development capacity while reducing operational and staffing costs. It’s an ideal solution for organizations that:
- Require continuous access to specialized technical expertise
- Aim to maintain strict security and compliance standards
- Seek long-term collaboration and team stability
- Need flexibility to scale development efforts efficiently
- Value a dedicated team working exclusively on their projects
However, setting up an ODC isn’t without challenges. It requires careful planning, an understanding of local regulations, and thoughtful investment in infrastructure and recruitment.
Partnering with an experienced ODC provider can significantly simplify this process—ensuring your offshore team is established quickly, securely, and aligned with your company’s goals. If you’re ready to explore this opportunity, reach out to our experts to learn how we can help you build a high-performing offshore development center tailored to your business needs.