Elizabeth Lee
Did you know that nearly 87% of tech companies turn to software outsourcing to reduce costs and access skilled talent more efficiently? That’s why many tech businesses are taking the next step—building their own Offshore Development Centers (ODCs) abroad. It’s no surprise, then, that the global offshore software development market has reached $122 billion in 2024. But why do businesses even need ODCs in the first place, and can an outsourced development center become a perfect solution for your tech business growth?
There are many trusted providers that help drive the wave of success. For instance, Alcor is a leading Software R&D accelerator that offers all the necessary support for building an offshore software development center and provides a 360-degree approach for its clients. This includes a perfect blend of tech recruitment, Employer-of-Record services (EOR), as well as operational support across LATAM and Eastern Europe.
In essence, an outsourced development center brings together a team of skilled developers, designers, and QA experts to craft tailored solutions for your business needs. This allows in-house teams to focus on core tasks like strategic planning and customer relations. Intrigued? Then, this guide is your go-to resource for unlocking the potential of ODCs!
Why set up an outsourced development center?
Overall, there are several key reasons why setting up your own ODC is the perfect solution. Let’s dive into the details:
- When you need to scale your team: When your company reaches a certain level of growth, expanding with local resources alone can become limiting. Establishing an outsourced development center allows you to scale up quickly and efficiently, tapping into broader talent pools and enhancing your IT delivery. This approach helps companies grow faster without the constraints of local resource availability.
- When you require specialists with narrow expertise: If your product demands cutting-edge technology or niche expertise, finding the right talent onshore can be a real challenge. By software development outsourcing, you gain access to specialized engineers who make up less than 10% of the entire market, with the precise skills needed for your project. This allows you to find top-tier talent from around the world, ensuring you get the best professionals available for your innovative product.
- When you need to lower your operational costs: Hiring highly paid developers in Western markets can put a strain on your budget, as the average salary in the US IT industry ranges from $98,000 to $130,000 per year. Offshore development centers offer a cost-effective solution, allowing you to hire skilled professionals at a fraction of the cost. Additionally, operational expenses such as office space, equipment, and facilities are typically much lower in offshore locations, giving you the opportunity to reinvest those savings into your business growth.
When you want to focus on your product: One of the most significant advantages of setting up an outsourced development center is the ability to focus on what truly matters—your product. With the day-to-day operations such as tech recruitment, payroll, and accounting handled by your IT nearshoring or offshoring provider, your company management can free up several hours a day to concentrate on strategic tasks that bring maximum value, driving productivity and long-term success.
Pros of working with an outsourced software development center
- No need to set up a legal entity abroad
One of the key advantages of working with an outsourced development center provider is that they already have a registered legal entity in the country you choose. This significantly reduces the stress and time involved in setting it up in a new location. You won’t need to worry about navigating the complexities of local regulations or hiring an in-house specialist or a team of them. This streamlined process allows you to focus on scaling your business while your provider takes care of all the legal and administrative steps.
- Cost optimization
Having your own outsourced development center allows you to avoid buy-out or hidden fees typically associated with other IT outsourcing models. The markup in outsourcing can reach up to 50%, meaning that your developers will receive only half of what you thought you were paying them. Additionally, buying out a team from an outsourcing provider can cost tens, if not hundreds, of thousands of dollars, depending on the developers’ level and experience. That’s why, by using an ODC model, you can directly negotiate affordable rates with your provider, ensuring a transparent pricing structure.
Additionally, your provider often has established contracts with local vendors, such as health insurance companies, which can offer significant discounts on essential services. This creates a cost-effective solution, helping you optimize both operational and service-related expenses while maintaining high-quality standards.
- Freedom from mundane back-office management
With your own ODC, you can forget about independently searching for talent, the lengthy interview and onboarding process, salary calculations, tax payments, and more. The outsourced development center provider takes care of all these tasks, as well as all operational functions, allowing you to avoid hiring additional managers and accountants and enabling you to focus on what matters most—developing your product.
- Higher developers’ dedication
Entering a new market under your own brand is crucial for tech companies. With outsourced development hubs, you can hire tech specialists directly, applying your own corporate policies. This approach allows you to build a dedicated offshore team that integrates seamlessly with your in-house operations, eliminating intermediaries. Direct management fosters stronger engagement and commitment as developers take ownership of the project with an entrepreneurial mindset, showing genuine interest in the company’s growth and success.
- Secured IP rights
By setting up your own outsourced software development center, you retain complete control over both your team and development processes, minimizing third-party access to your product. This reduces IP risks through strict access controls and strong network security. As an extension of your own office, the ODC doesn’t require extra security or compliance monitoring, streamlining your operations while safeguarding your intellectual property.
Mistakes when setting up an outsourced software development center
Setting up and operating an outsourced development center presents its own set of complications. If you decide to set up an ODC on your own without involving a provider, you may encounter the following mistakes:
- Selecting the wrong location.
For instance, prioritizing the lowest developer salaries in a region may seem cost-effective at first, but it often leads to a shortage of qualified talent. As a result, the initial savings can quickly be outweighed by the challenges of hiring skilled developers for your outsourced software development center, causing inefficiencies and project delays.
- Failure to comply with the local laws.
This can result in fines or, worse, legal disputes. Partnering with a trusted provider ensures adherence to local regulations, protecting your business from potential legal and financial risks.
- Incorrect budget planning.
Due to unfamiliarity with local taxation and other regulatory expenses, you may end up spending more than initially anticipated. Engaging an experienced provider can help you avoid unexpected costs in setting up your outsourced software development center and ensure accurate financial planning from the start.
On the other hand, if you decide to work with a provider, there are potential pitfalls to watch out for:
- Choosing the wrong provider.
Starting a partnership with an unreliable provider who uses unclear pricing models, fails to meet deadlines, or lacks knowledge of local regulations can lead to serious issues. Conducting thorough research, reviewing feedback on independent evaluation platforms like Clutch and GoodFirms, and carefully vetting providers can minimize risks and help you select a trusted partner for building your outsourced development center.
- Engaging multiple providers simultaneously.
This approach can create additional coordination challenges, lead to higher expenses, and significantly delay project timelines. Choosing one reliable provider ensures streamlined operations and keeps your project on track.
Short tips to avoid risks after ODC running
When doing security threat assessments, test previously identified threats and take extra care when conducting continuing risk assessments. Implement proper data protection measures, such as passwords, data encryption, physical access restrictions, and security audits. Guarantee that everyone in the outsourced software development center team receives basic training on how to avoid jeopardizing data and other intellectual property.
Effective channels of information transfer and organizational communication must be established to address this lack of engagement. Periodic meetings should be held to review project work, address challenges that have emerged, and coordinate the team. To finally establish successful knowledge transfer support systems, well-designed private information repositories, and documentation must be developed.
Business practices for proactive HR management, a positive corporate atmosphere, and incentive schemes will all help to retain and recruit outsourced developers. The tools that will be used for future communication should allow team members to collaborate closely while assuring them that the time shift will not impede their way of interacting.
Top destinations to set up an outsourced development center
Regions like Latin America and Eastern Europe are home to over 3,300,000 tech specialists and boast some of the world’s leading tech hubs. Why are they true treasure troves for foreign businesses? That’s the secret:
- Latin America: Stands out as a top destination for establishing an outsourced development center, thanks to its vast pool of 2 million software developers who excel in Java, PHP, Python, JavaScript, Swift, .NET/.NET Core, and other sought-after technologies. With competitive salaries averaging $46,000—64% lower than in the US—and seamless time zone alignment, countries like Mexico, Colombia, Argentina, and Chile offer the ideal blend of talent, cost-effectiveness, and accessibility for tech companies.
- Eastern Europe: With 1.5 million skilled tech experts, 80,000 STEM graduates annually, and competitive developer salaries 55% lower than in the US, the region positions itself as an ideal destination for setting up your outsourced development center. Add to that top-tier English proficiency and seamless collaboration, and you’ve found the perfect hub for innovation.
Still wondering which location to choose and where to find the top outsourced development center provider? Here’s a little recommendation from us.
A Trusted Software Development Center Vendor
Among a strong pool of outsourced development center providers, one stands out for its comprehensive approach and ability to seamlessly navigate both the LATAM and Eastern European markets. Alcor is building tech R&D centers for Western tech product companies, leveraging its deep expertise to offer:
- Top-tier tech recruitment with access to Silicon Valley-caliber developers, selecting from the top 10% of the market and closing one role in 2-6 weeks.
- A full range of EOR services, including payroll, tax management, legal compliance, onboarding/offboarding, and employee benefits.
- All necessary operational support, including office leasing and providing essential equipment for your offshore teams.
And the cherry on top—no need to establish a legal entity, zero buy-out fees, and 24/7 account specialist support. The result? Stress-free business expansion into new markets!
Final Thoughts
As we’ve seen, establishing your own ODC is ideal for companies looking to expand their teams, hunt for rare expertise and technical skills, and, most importantly—when you need to delegate daily tasks and focus on your product while real specialists run all necessary processes.
Operating through the ODC model offers a wide range of benefits for tech businesses, including cost reduction, access to top-tier specialists who are fully dedicated to your product, intellectual property protection, and a smoother market entry since you won’t need to set up your own legal entity.
However, despite all these advantages, it’s essential to consider the significant challenges when building your ODC either independently or with a provider. Choosing a trusted vendor with deep expertise and knowledge of the local market will truly help you leverage the full potential of ODC and significantly boost the growth of your business.