Offshore Development vs Outsourcing. How to start and manage Offshore Development Center in Ukraine?

What is an Offshore Development Center (ODC)? 

ODC is a department or an extended team of your company located in another country, working on software development, testing, support, or other tasks. Many companies open ODCs in countries with favorable business climate, a large pool of tech talents, and lower cost of living.

Due to COVID-19 and remote working boom, ODCs become even more popular. Many companies who were relying on an in-house team only, consider offshoring. You can also turn the crisis to an opportunity to cut costs and move software development to Ukraine or another suitable country.

An ODC represents a company, shares the corporate policies, management methodology, values, etc. An ODC is usually a more self-contained, independent unit then just an extended dedicated team of developers and testers. It may include more versatile specialists and operates its own office.

Offshore Development Center Models

There are two models, Contractor ODC and Customer ODC.

• Contractor ODC Model

This model is more suitable for small and medium-sized businesses. The ODC performs a wide variety of tasks (analytics, developing new software and updating existing products, support, UX and UI design, etc), not only research and development. It’s staffed by a variety of specialists. The ODC completes projects according to specifications provided by the main office. 

• Customer ODC Model

This model is more often used by enterprises. The client company that establishes an ODC takes care of analysis, design and management tasks. The ODC is less independent, it has a  narrower scope. It’s a team of software engineers, testers and project managers who are focused on producing high-quality code, while other processes are maintained in the main office.

Offshore Development Center vs Outsourcing

Offshoring is the movement of a business process done inside one company (an ODC is a department or an extended team) but in different countries. Outsourcing is when business processes are handed over to another company.

Offshore development is most often aimed at getting additional workforce but at reduced costs. Outsourcing doesn’t necessarily mean low cost, it often takes place when a client company needs some external expertise. 

Pros of both Offshore Development and Outsourcing (compared to an in-house team)

Both allow companies to cope with the global tech talent crisis.

The demand for software developers, designers, QA, and other tech specialists is huge. It by far outstrips supply. Often, it takes too long to find in-house employees, especially, when you’re limited by geographical location. Offshore development and outsourcing allow companies to get the work done without struggling to find talents. You have access to a much wider talent pool when you offshore or outsource. And you can receive the services faster.

Both are more budget-friendly. 

Cost-effectiveness, as we mentioned above, is usually the reason for offshoring development to the countries with 

• lower cost of living and lower rates, 
• lower rent and other office-keeping expenses, 
• often, (much) lower taxes.  

However, outsourcing also allows you to save. You can outsource to countries with lower costs of services. And if you outsource the operations because of a lack of expertise in a given sphere, it’s more cost-effective than hire and train an in-house team of specialists.

Cons of both Offshoring and Outsourcing

Intellectual property protection and data security concerns.

Surely, you’ll have to share confidential information with your contractor company or your offshore team. In many countries where offshoring and outsourcing are profitable, there are few regulations on IP, or they are not strictly complied with. 

So you should audit the security of the outsourcing partner or take measures to establish a high level of data security at your ODC. But anyway, you can’t control the sensitive data the way you do in-house.

Offshore Development Center

Pros

• Ownership and full control

Your ODC is fully under your control. You set the processes and project management methodology, you select the team members and can train them as you find necessary. You can directly influence them in case you are not fully satisfied with the quality or speed.

• Talent pool

Offshoring software development or related processes allows you to access a large pool of talent. You can hire a team of specialists with the right skills, and you’re not limited by geographic position. After proper research, you can open an ODC in a country with the best talents, and the best price-quality ratio. Often, the management sees real gems in their offshore teams and invites them to work in the main office. 

• Taxing

Often, the taxes are lower, and there are favorable government policies. It allows for reducing costs even more.  

• Help with current projects

You can engage your offshore team whenever you’re short of hands (or minds). When you see that you’re getting late with your current project, your external specialists can just step in. Outsourcing wouldn’t save the day under these conditions.

There are some factors that can be a competitive advantage when managed right. For example, the time difference allows getting work done round the clock. But in case of poor synchronization, and the lack of communication, it can cause delivery delays.

Cons

• Cultural differences 

This factor can cause some problems with outsourcing, too. But there, you don’t have to communicate with a team so closely and will not suffer that much in case of clash of approaches, because of different attitudes to task completion, communication and conflict management styles, decision-making styles.

Outsourcing 

Pros

• Flexibility

When you create an ODC, you have expenses even when there’s not that much work. You pay salaries, office rent, etc. When you outsource a task, you can stop cooperating (and paying wages) after the project is completed.

• External expertise

Outsourcing can be a great choice for specialized tasks like marketing, tech support, or, say, financial services, and surely, manufacturing. Especially, if your company has no previous experience in the given sphere. You find a competent company and outsource instead of hiring and training your own team, in-house or abroad. You can focus on your core expertise.

Cons

• No control

When outsourcing, especially to a company in another country, you have just minor control over how the work is done. It can result in the loss of quality and delays, and you have much less power to improve the situation than with an ODC.

• Batch production

The outsourcing companies usually have several business partners at once. It may lead to the lack of attention to you as a client, poorer quality (which they call acceptable quality).

In general, outsourcing is more proper for some occasional tasks. Often, companies decide to open their own R&D center instead of outsourcing the tasks, as they get more and more work related to a certain sphere.

Why Ukraine

There are several popular locations for offshoring software development: Philippines, India, China, Poland, Ukraine, and others. Why should you choose Ukraine?

• Ukraine is among the top 20 offshore locations in EMEA (Gartner) and among top 25 IT service exporters (PwC).
• There are more than 190K of IT specialists, and each year, about 30K tech graduates widen the pool.
• Ukrainian specialists are rated high for their professionalism (5th among the best software developers in the world).
• The price-quality ratio is optimal: experienced employees who maintain high-quality standards can be hired at reasonable rates.
• Ukrainian developers are aimed at long-term cooperation, they have a good command of English and are culturally close to the West. It ensures good communication important for an ODC.

How to start an ODC in Ukraine?

There are two ways how to do it. 

The first way is to go for a business trip, invest some time and open your ODC by yourself. With consultations and help from local specialists (legal, HR, real estate), you’ll be able to control everything and set it up as you like it. Selecting the right kind of employees and providing comfortable work conditions are important factors of creating a successful, efficient offshore department.

1. Register your company as a legal entity.
2. Rent, furnish and equip an office.
3. Plan your ODC security measures 
4. Understand the local tax system and take care of paying taxes
5. Hire staff: first, you hire recruiters and HR, then, developers and other tech specialists.

Note: usually, you’ll also have to take care of employer branding to attract the best talents on the local labor market.

The second way is analogous to the Build-Operate-Transfer model. Find a vendor who will do everything for you. Let them set up, optimize and run an ODC for you and transfer it to your representatives.

In this case, you have just to select a reputable service provider with a good track record and to properly explain your requirements. 

Benefits of setting up ODC with DNA325  

DNA325 is a partner who can create an efficient Offshore Development Center for your business. 10+ years in IT recruiting and related services make it a valuable partner. The agency will take care of preparing all the work conditions and organizing all the processes, at all the steps of ODC creation. We provide:

• Legal support 
• Fully equipped office facilities
• Recruitment of top talents that fit your corporate culture 
• Accounting 
• Office management and administrative services

We also provide operational support preparing all kinds of agreements with employees: job offers, initial contracts, and their updated versions, NDAs, non-solicitation, and termination agreements.

DNA325 accounting specialists take care of registration, invoicing, tax reporting, etc.

To make your ODC operational and efficient, DNA325 helps to create and execute new employee orientation & onboarding programs. Later on, you can get assistance with performance reviews and career development plans for your employees.

How to manage an ODC in Ukraine?

It’s important to treat the team members of your ODC as equal to your in-house workers. At the same time, at the start, you should pay some additional attention to onboarding and making them feel a part of your company, not just some hired hands.

1. Give them a clear vision of your objectives.
   Share the company values and culture. Note, that it’s important to hire people who have necessary hard and soft skills but also fit the company culture. Sometimes, it’s easier to get to grips with a certain technology than to blend in a totally alien culture.
2. At the start, give some room for a learning curve. Working as a remote team with management at the central office, with a new corporate culture and management style, in a new business can be challenging at the start. Give your IT specialists time to get accustomed. Consider arranging a series of training for your ODC employees.
3. Make sure you communicate your business and project requirements clearly and unambiguously.Establish regular meetups via videoconferences. Simplify your language. Even if they’re fluent in English, it can save time and effort.
4. Give appropriate feedback.

It’s even more important than for your in-house team. Take care of providing the employees with detailed feedback and you’ll get a team you can fully rely on.

Summary

Opening an Offshore Development Center allows reducing costs and accessing a large talent pool. Ukraine is a popular country for offshore software development because of its good price-quality rate, numerous IT specialists, suitable culture. Also, you can count on DNA325 in all the preparations and administrative processes creating your ODC in Ukraine.

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NameHubert Wolfeschlegelsteinhausenbergerdorff

Your emailwolfeschlegelsteinhausenbergerdorff@mail.com

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