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Talent JDI
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1 minutes
LAST UPDATED
Oct 23, 2024
In today's fast-paced business landscape, companies are turning to Offshore Development Center (ODC) as the viable solution for scaling up operations and meeting the ever-rising customer expectations.
It is a particularly popular strategy within the tech industry, where companies are establishing dedicated offshore software development centers to enhance their IT capabilities and maintain full control over their technology projects across international boundaries.
This article will focus mainly on ODC for software development, where businesses establish their offshore development center. It is also worth noting that some businesses may refer to ODCs in terms of using services provided by a third-party provider, which is essentially just outsourcing.
What is an Offshore Development Center (ODC)?
An ODC is a dedicated team, located in a foreign country, that works exclusively on certain projects for a company. In other words, an ODC functions as the company's overseas extension, with its own office space, administrative staff, and all the necessary equipment and infrastructure to operate effectively.
Setting up Offshore Development Center
When it comes to setting up Offshore Development Centers, there are three primary ways, each designed to meet specific business needs and project requirements. These models offer varying levels of control, flexibility, and risk management, allowing companies to choose the one that best aligns with their strategic objectives.
Wholly Owned ODC | The company sets up and owns the ODC entirely, typically based in countries with lower costs of operations. They will also handle all aspects of operations, staffing, and infrastructure.
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Joint Venture ODC | The company partners with a local firm or entity to establish an ODC, sharing ownership, risks, and benefits.
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Build-Operate-Transfer ODC | The company lets a trusted offshore vendor handle the setup and early development phases of the ODC. Once it is operational, complete ownership and control are transferred to the company, granting them full management authority.
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Setting Up ODC vs. Outsourcing to a third-party ODC
As mentioned above, some businesses might get confused when searching for information about ODCs online and instead find more results related to software development outsourcing. While both strategies aim to enhance tech capabilities, they are fundamentally different in their approach.
Key Differences | Setting Up ODC | Outsourcing To ODC |
Definition | Establish a dedicated team or department overseas that handles software development for the company | Delegate specific IT tasks or projects to a service provider overseas |
Ownership & Control | Greater ownership Full development control | No ownership Limited development control |
Project Term or Size | Long-term Medium to large projects | Short-term Small to medium projects |
Security | High | Might pose risks |
Costs & Pricing Structures | Can be cost-effective for long-term investment Typically involves fixed costs for salaries, infrastructure, and management | Lower initial costs, best for short-term projects Usually billed per project or at hourly rates |
Read on to discover: Outsourcing And Offshoring: What Is The Difference?
Top Benefits of Establishing an Offshore Development Center
1. Offshore Development Center Advantage | Cost Efficiency
Setting up an ODC can lead to significant cost savings by taking advantage of regions with lower labor and operational expenses, ultimately reducing overall infrastructure and overhead costs.
2. Offshore Development Center Advantage | Access to a Larger Talent Pool
It also provides access to a larger talent pool, allowing companies to tap into specialized skills that may not be available locally, and to quickly scale their teams as project demands grow.
3. Offshore Development Center Advantage | Greater Development Control
Companies benefit from greater control over their projects, as an ODC offers direct oversight and better integration with the main office, aligning development processes with the company’s strategic goals.
4. Offshore Development Center Advantage | Shorter Development Cycle
An ODC fosters continuous innovation by dedicating teams to focus on developing new features and products rapidly, ensuring a faster response to evolving market trends and customer needs.
5. Offshore Development Center Advantage | Data Security
Companies can swiftly address potential vulnerabilities by maintaining direct oversight of security measures within the ODC, further safeguarding their intellectual property and confidential business data.
6. Offshore Development Center Advantage | Future Market Expansion
Establishing an ODC also presents market expansion opportunities, providing a strategic foothold in key regions that allows companies to tailor products and services to local preferences and standards.
Why Businesses Prefer to Set Up Offshore Development Center in Vietnam
Among other Asian countries, Vietnam has emerged as a preferred destination for establishing Offshore Development Centers (ODCs) due to its strategic location, favorable economic conditions, and supportive government investment policies.
1. Cost Advantage
In 2024, Vietnam witnessed a 5–15% decrease in average developer salaries as a result of the economic downturn and layoffs, contributing to significantly lower costs for hiring skilled professionals. As such, hiring a developer with five years of experience in Vietnam is 40% to 60% less expensive than in Singapore or the US.
Additionally, the added advantage of a low cost of living and affordable office rental further contributes to substantial savings when forming an offshore development center compared to other regions.
2. Skilled Workforce
Vietnam's IT industry is fueled by a workforce of approximately 530,000 developers, with an influx of 57,000 new graduates entering the labor market every year.
Remarkably, this dynamic talent pool demonstrates expertise across diverse domains and excels in a broad spectrum of programming languages, frameworks, and technologies, with many also possessing strong English proficiency.
3. Strategic Location
Situated in the heart of Southeast Asia, the country stands out as a key hub for offshore software development. Its strategic location provides seamless access to neighboring countries, facilitating smoother cross-border collaborations and enhancing regional connectivity.
As a result, this geographical advantage can boost the efficiency and scalability of multinational tech projects.
4. Government Support
The Vietnamese government's commitment to drive FDI inflows is evident in its proactive development of policies under Resolution No. 50, which focuses on enhancing institutional frameworks, infrastructure, and workforce capabilities.
This, together with the supportive updates for foreign investment incentives proposed under the draft Law on Digital Technology Industry, has cultivated a favorable environment for ODCs setup.
5. Regional Tech Hub
A stable economy, a burgeoning tech startup ecosystem, and a steadfast approach to digital transformation are the driving factors behind Vietnam’s emergence as a regional hub in Southeast Asia.
As part of the future-oriented strategy, the country is set to develop extensive tech zones and harness advanced technologies, notably AI and Machine Learning, to cement its role as a pioneer in Asia’s technology sector.
Read on to learn more about Vietnamese tech talent: 2024 Vietnam Developer Salary Report
Challenges of Establishing an Offshore Development Center In Vietnam
Along with their advantages, ODCs come with potential drawbacks that need to be carefully managed. Below, we outline some common challenges and strategies for overcoming them:
1. Language and Cultural Barriers
Although English is the most widely spoken foreign language in Vietnam, proficiency levels in professional settings can vary. Furthermore, navigating complex hierarchical titles and business etiquette, such as ways of greeting, indirect communication, work styles, and reciprocation, may pose challenges.
How to navigate this issue:
- Team members should be proficient in English or the specific language needed.
- Promote cultural awareness to foster collaboration between team members.
- Make sure that all documentation, guidelines, and feedback are clear and straightforward.
2. Communication and Management
The geographical distance and time-zone differences can limit face-to-face interactions and overlap in working hours between your in-house team and the ODC in Vietnam, which in turn requires strict management practices to avoid significant productivity loss.
How to navigate this issue:
- Implement communication tools and platforms for business (e.g., Slack, Microsoft Teams).
- Set up regular updates, meeting schedules, and reporting structures.
- Utilize project management tools (e.g., Asana, Jira) to track progress, assign tasks, and manage workflows.
3. Complex Regulatory and Compliance
Navigating compliance requirements and regulatory standards in Vietnam is one of the common struggles for many companies. Hence, proper guidance on legal frameworks, taxation systems, and required licensing is essential to prevent fines, legal action, or reputational harm.
How to navigate this issue:
- Regularly updating documentation for compliance practices and regulatory requirements.
- Consult with legal experts for comprehensive advice, which is also typically included in the services offered when partnering with a vendor to establish an ODC.
Explore more details: How To Manage A Software Development Team in Vietnam
Conclusion
Companies often set up Offshore Development Centers (ODCs) to address the growing need for faster software development cycles and to overcome limitations within their in-house resources, such as high costs, extended development timelines, infrastructure issues, and gaps in specialized expertise.
Additionally, ODCs help mitigate the challenges of a domestic tech talent shortage. By leveraging an ODC, businesses can reduce software development expenses, accelerate time-to-market, and strengthen their competitive position, ultimately driving business success.
Setting up an Offshore Development Center (ODC) can be difficult and time-consuming because of challenges such as legal requirements, cultural differences, communication issues, and talent access.
To navigate these complexities, many companies choose to work with a reliable third-party vendor to simplify and expedite the setup process, ensuring a smoother transition and more efficient establishment of their ODC.
A prime example is Shopback, a leading shopping, rewards, and payments platform, that successfully established its offshore development center in Vietnam with the assistance of Talent JDI as the local expert in Vietnam. Discover their full story here!
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