Outsourcing vs Offshore Development Centre (ODC): What’s better for you in 2023?

The global IT market is developing, while the demand for tech talents is growing, many companies choose to seek help from external parties. Outsourcing and offshore development centres (ODCs) are two popular ways for businesses to get the work done. They have become buzzwords for two decades. Many people don’t have crystal clear definitions of both these terms and even use them interchangeably. However, there are some key differences between the two approaches.

So, which approach is right for you? In this article, we will discuss the pros and cons of outsourcing and ODCs, compare the differences between them and help you decide which is the best fit for your business in 2023.

outsourcing vs offshore development centre

1. What is Software Outsourcing?

Software outsourcing is the practice of hiring a third-party company to develop software for you. This can be done for a variety of reasons, such as to save money, improve efficiency or gain access to specialised skills or resources.

There are three main types of outsourcing, including:

  • Offshore outsourcing: It can be known simply that the task is outsourced to a company in another country. This is often done to save money on labour costs.
  • Nearshore outsourcing: This is when the work is outsourced to a company in a neighbouring country. This can be a good option if you want to maintain a close relationship with the outsourced company.
  • Onshore outsourcing: It means that the work is outsourced to a company in the same country. If you want to maintain control over the work and ensure that it meets your standards, consider this option.

1.1. Advantages of Outsourcing

  • Cost savings: The first and crucial advantage of outsourcing is saving money on labour costs, especially if you outsource to a company in a lower-cost country. For example, development outsourcing in Vietnam is nearly 90% less expensive than hiring US workers, according to CIO Magazine.
  • Access to specialised skills: You may access specialised skills and resources which are lacking in your in-house team. For instance, if you need to develop a mobile app, you may not have the in-house expertise to do it yourself, but you can get the job done by an outsourcing team of experienced developers.
  • Increased focus: Outsourcing can free up your internal resources so that you can focus on other tasks, such as product development, UI/UX Design or marketing.
  • Improved quality: By giving you access to a team of experienced staff, outsourcing can help you improve the quality of your products or services. Especially, when you choose to outsource to a company that has a proven track record of quality, you can be confident that your products will meet your standards.
  • Faster time to market: Outsourcing would help your products or services ready to market faster, as it taps into the resources of a company that is already familiar with the process. If you outsource your development process in a specific industry to a company that has experience in this industry, you can get your products or services in front of potential customers more quickly.

>>> Read more: 10 Great Advantages of Software Outsourcing to Vietnam

1.2. Challenges of Outsourcing

  • Communication and cultural differences: If you are an European entrepreneur outsourcing your product to a company in Asia, you may have difficulty communicating with the team because of the language barrier, or deal with cultural differences, such as different expectations about customer service.
  • Security risks: There are security risks associated with outsourcing, such as the risk of intellectual property theft.
  • Vendor management: It can be difficult to manage vendors, especially if you are outsourcing to a company in another country. You may have difficulty communicating with the outsourcing company and ensuring that they are meeting your standards. 

2. What is an Offshore Development Centre (ODC)?

An Offshore Development Centre (ODC) is a dedicated centre, typically located in another country, that provides specialised software development services for an organisation. It is an extension of the client’s own remote development team and operates as a separate entity, often with its own management and infrastructure.

2.1. Advantages of using Offshore Development Centre

  • Cost savings: Offshore Development Centres can offer significant cost savings compared to hiring in-house developers. This is because the cost of labour is lower in many countries where ODCs are located.
  • Access to skilled talents: There is a large pool of skilled IT professionals available in many countries where Offshore Development Centres are located. This can give companies access to the talent they need, even if they don’t have the resources to hire in-house developers.
  • Increased agility: Offshore Development Centres can help companies to be more agile and responsive to market changes. This is because they can quickly scale up or down their development team as needed. For example, if a company needs to launch a new product quickly, they can outsource the development to an ODC.
  • Improved quality: Offshore Development Centres can help companies to improve the quality of their software products. This is because they often have a strong focus on quality assurance and testing. 
  • Scale up or down quickly: Offshore Development Centre can be a good option for companies that need to scale up or down their development team quickly. This can be useful for companies that are facing seasonal fluctuations in demand or that are launching a new product.
  • Bring the product to market quickly: Offshore Development Centre can help companies to bring their products to market faster. This can be a good option for companies that are competing in a fast-paced market.

2.2. Challenges of using Offshore Development Centre

  • Communication and cultural differences: Communication and cultural differences can be a challenge when working with an Offshore Development Centre. It is important to have a clear understanding of the expectations and requirements of both parties. 
  • Security and compliance: Companies need to be aware of the security and compliance risks. They need to take steps to mitigate these risks, such as by using secure communication channels and ensuring that the Offshore Development Centre is compliant with all relevant regulations.
  • Lack of control: Companies may have less control over the development process when they use an Offshore Development Centre. This can be a challenge if the company needs to make changes to the project scope or timeline.

>>> Read more: Offshore Development Centre (ODC): Great things you need to know in 2023

3. Outsourcing vs Offshore Development Centre (ODC): What’s the key difference?

Outsourcing and Offshore Development Centre (ODC) are two terms that are often used interchangeably, as they share some similarities:

  • Both involve in hiring a third-party company to perform tasks
  • They all help you save your cost, access to specialised skills and scale up or down your team
  • You can improve efficiency and focus on core competencies by leveraging them

However, they actually have some key differences. The table below will compare outsourcing and ODC to help you understand thoroughly:

FeatureOutsourcing Offshore Development Centre (ODC)
LocationAny country (including the country your company based in)Different country with your company
Main purposeAccess to specialised skills and expertiseAccess to talented software developers for hire with lower cost
ActivitiesDelegation of non-core work or parts of a projectRelocation of complete business processes
ClientsStartups, mid-size businessesLarge and global company
Project SizeSmall and mid-sizeLarge
ModelTask-oriented Value-based
ControlDepend on the engagement modelFull control
CommitmentMinimum CommitmentContractual Commitment
Talent AcquisitionDo not attend in hiring processBe a part of recruitment process
ConfidentialityLower (Privacy risk, loss of control…)Higher
Communication and cultural differencesCan be a challenge, but can be mitigatedMore challenging due to the physical distance and cultural differences

To conclude the difference between outsourcing and ODC, companies who choose to outsource some of their development tasks to a service vendor, as they need unique talent to create a more competitive product for them. Whereas, large companies that have some offshore development centres expand their presence in other countries across the world.

4. The Best Approach for Your Business

The decision of whether to outsource or set up an offshore development centre (ODC) depends on a number of factors, including your specific needs and requirements, as well as the specific project or task at hand. 

Here are some things to consider when making your best decision

  • The size and complexity of the project: If the project is large or complex, it may be better to set up an Offshore Development Centre so that you have more control over the process.
  • The level of expertise required: If the project requires specialised skills or expertise, it may be better to outsource to a company that has those skills.
  • The time frame: If the project needs to be completed quickly, outsourcing may be a better option.
  • The budget: If you are on a tight budget, outsourcing may be a more affordable option.
  • The level of risk: If you are concerned about security or intellectual property theft, it may be better to set up an Offshore Development Centre.
  • Your company culture: If you have a strong company culture, you may want to keep the project in-house.
  • Scalability: If you need to quickly expand your business to solve the problem of simultaneously recruiting a large number of qualified professionals, then offshore development centre can solve this problem.

Ultimately, the best approach for your business will depend on your specific needs and requirements. If you are looking to save money and gain access to a wider pool of talent, then ODC may be a good option for you. However, if you are concerned about communication and cultural differences, then outsourcing to a company in your own country may be a better choice.

5. Tips to follow when outsourcing or setting up an Software Development Centre

Do your Research

Before you make a decision, it is important to do your research and understand the different options available. This includes reading portfolios, comparing quotes, and interviewing potential partners.

You need to ensure that the company you choose can get insights about your product and their portfolio can tell you clearly about them. From that, you may know what the company specialises in, what makes them stand out, and what they can offer to help you improve your product or service.

Get everything in writing 

Once you have decided to outsource or set up an ODC, it is important to get everything in writing. This includes the scope of work, the timeline, the cost, and the terms of payment.

Set clear expectations

It is important to set clear expectations with the outsourcing or ODC partner because the most crucial aspect of software development (both outsourcing and offshoring) is effective communication. This includes the level of communication, the quality standards, and the deliverables.

Speak out your requirements and expectations so that you can also understand the company you choose better and know if they can deliver an appropriate software product for you.

Manage the relationship 

It is also important to manage the relationship with the outsourcing or ODC partner. This includes communicating regularly, providing feedback, and resolving any issues that may arise.

6. Setting up your Offshore Development Centre

Here are the steps involved in setting up an offshore development centre:

1. Define your goals and requirements

2. Select a location

3. Choose an Offshore Development Centre model

4. Recruit and hire developers

5. Set up the infrastructure

6. Onboard the developers

7. Manage the Offshore Development Centre

There are many countries that are popular for offshore development centres, Vietnam is among one of them. According to Statista, Vietnam is among the top 6 leading countries in offshore business services worldwide in 2021. Vietnam has many competitive advantages when compared to others, such as low labour cost, highly skilled workforce, political stability, favourable business environment, dedicated workforce and so on. So, if you are hesitating which country to set up your ODC, consider Vietnam.

>>> Read more: How to set up an Offshore Development Centre (Dedicated team) in Vietnam

Conclusion

In conclusion, there is no one-size-fits-all answer to the question of whether to outsource or set up an Offshore Development Centre. The best approach for your business will depend on your specific needs and requirements. If you are looking for a cost-effective way to get the work done quickly, outsourcing may be a good option for you. However, if you are concerned about security or intellectual property theft, ODC may be a better option.

If you are not sure which approach is right for you, it is a good idea to consult with an experienced outsourcing or ODC consultant. When you choose to work with AgileTech, you will receive huge tech support as we have 8 years of software development experience, helping in both outsourcing and ODC development. We have a proven record of building high-quality software products for clients around the world. If you need further information and consultation for your project, feel free to fill out this form to meet our IT experts!

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