Offshore Dedicated Centers

a popular trend in outsourcing

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 Table of Contents
- ODC features

- Benefits, flip sides and challenges

- Set up steps

- Budget components, estimate

- Sample cost dynamics

- Operational models

- ODC service levels

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 Why an Offshore Development Center

Offshore Software Development Centers

(ODCs):

- are good for both startups and existing

businesses

- can run one or several software engineering

projects simultaneously

- can include one or several software

development and QA teams with different skills

- are set up and supported by an outsourcing service

provider usually at their premises and with the vendor’s
experience and existing infrastructure

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 ODC features
- serves as a technology and software engineering extension of
customer’s main facility

- allows the customer focus on business specifics while the admin

routines are being resolved by the outsourcing services vendor in parallel

- possibility to effectively keep, reduce or

increase ODC staff when the customer
merges with another company or sells the
business

- customer’s 100% ownership

- staff replacements within from a week

to a month, no special costs

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 ODC features
- recommended contract term: from 6 months to several years
- upfront payments are not requested unless a large volume of
equipment is required to be purchased
- ownership: the outsourcing services provider may or may not participate
- security measures:

security

maintained no additional
by vendor disaster recovery
costs

data backup

- workflow is adjusted in order to meet the one hosted by the customer; a

replication of existing customer environment at the vendor’s side is
suggested. Otherwise the vendor sets up the environment and workflows.

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 Benefits
For the customer:
- quick set up and quick cancellation
- reduced costs as compared to onshore labor
costs
- reduced costs as compared to offshore full time
development team
- transparent (“aquarium” vs. a “black box”)
- simplified accounting
- no problems to visit

For the vendor:

- additional jobs
- additional income
- possible % in ownership (negotiated and is
not mandatory, though)
- new experience in customer’s business
domain

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 Flip sides and challenges
- requires intensive communication due to large geographic distances; poor
communication makes ODC use its resources inefficiently & increase overall costs
- requires regular assessment of the team to perform necessary HR
adjustments
- ODC members are not native English speakers in the most cases; lack of other
European language speakers
- may require additional trainings in customer’s business domain
- time difference

- may need mutual adjustment of processes,

e.g. work out identical views, accepted by the
customer and the outsourcing services vendor, on:
- team management
- motivation
- quality control, etc.

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 Flip sides and challenges
- the customer may need to get familiar with local HR markets, their specifics,
levels of salaries and professionalism to make effective HR decisions if he wants to
- startups often don’t have solid development processes: the outsourcing
services vendor has to analyze, recommend and implement
- average time to hire talents **:

- business requirements are always on customer’s side: ODC only delivers

software, meets deadlines and quality. The customer extends it to the market.

** An advantage of dealing with an outsourcing team provider who already has an existing infrastructure and works
with multiple clients is the vendor’s obviously having a pool of talents that might be used in ODC temporarily or
permanently, hence, cutting down the time for hiring.

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 Steps of ODC creation
- create and discuss an estimation for the monthly budget

- consider a particular model of building the team:

- based on existing vendor’s employees or hiring new ones or a mixed model

- figure out requirements to the talents expertise, identify the needs of:

permanent long-term contractors for shorter

employees vs. periods of time

- plan infrastructure:

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 Steps of ODC creation (continued)
- budget sign off

- build a team: hiring processes

- set up knowledge transfer, requirements gathering process, training

- set up communication process:

personal
meeting reporting
communications
schedule

- set up workflows, management systems

- achieve success

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 Budget components, estimate
Typical regular budget expenses are:

- salaries, bonuses

- office space costs

- collective taxes

- telecommunication costs

- bank expenses

- a fee to the vendor

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 Budget components, estimate
Monthly budget **:

- 10 ... 30 engineers, no equipment purchase needed → $23k … $70k

- 10 … 30 engineers, equipment purchase → $40k … $110k

Timing:

- build a 10 … 30 engineers ODC → 1 … 3 months

** details available upon request

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 Sample cost dynamics of a startup based on one of the existing ODCs

Full staff, a number of short-term

sub-contractors. Pre-release efforts.
High costs
normalized costs, %

Production final
release. Support
started

months
Initial cost of
Support with the
infrastructure,
same staff who
purchase, no Infrastructure is ready,
started the initial The product is stable.
employees a small number of
development Support costs are
employees, started
lower
hiring process

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 Operational models
- regular model:

developers
senior
TL + testers
developers
QA manager

- independent engineers model: → intensive communication

- mixed

In any case the process is overviewed by the outsourcing

service provider’s representatives.

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 Typical ODC model structure

customer it consultant vendor

senior
developers

team
leaders

developers

testers

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 ODC service levels
What the customer can do:

- review all and any costs, cost analysis, suggestions and negotiations
for cost reductions or additional expenses
- HR activities such as:
- conduct interviews
- make hire decisions
- make firing decisions
- motivate – bonuses

- project management: yes, if the

customer wishes, and may be hidden if the
customer wants so
- visits to ODC: yes, any time

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 ODC service levels
What is hidden from the customer:

- local accounting reports, tax and legal

fee payments, vacation and holiday
management

- micro cash flow management, payroll

- initial resume screening, HR,

replacements, training

- sys admin support, office equipment

- disaster recovery support and data

management

- physical, network and data security

steps

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 ODC service levels
Types of activities supported by ODCs:

- box software development

- custom application development
- gathering requirements:

partially dependent on
independent vs. independent vs. customer

- system design
- QA and testing
- tech writing
- marketing research, content and
data management, SEO
- remote system administration

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 ODC service levels
Level of ODC professionalism and success:

- highest level capabilities (desirable level): gather functional

requirements, do system design, coding, QA planning, design and run
test cases, final delivery, acceptance testing. ODC strives to take a
leadership role in as large area of responsibilities as possible. It is
typical for Ukraine and Russia.
- middle level capabilities (ok level): system design, coding, test
cases creation, testing, final deliveries
- lower level capabilities (ok only for particular cases): coding, test
case execution or either of them. It is typical for India and China.

Business analysis and business requirements

are always done on customer side.

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 Thank you!
Questions? → info@softheme.com

2010 | Softheme Team | Kyiv, Ukraine | Software Outsourcing Solutions

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