What’s the cost of opening an offshore development center? A detailed calculation

64% of companies outsource their software development. Setting up your own offshore development center is a strategic decision that ensures stability and protects security-sensitive software. However, to run your offshore ODC lean and fast, you will spend a fortune, get to grips with the local legislation and learn the unheard-of practices.

Based on the example of Ukraine, we’ve calculated the amount you’ll need to budget for opening an ODC center yourself. Get the numbers and compare them with the overall cost you’d pay if partner with a local vendor.

Offshore development center (or ODC) is an office or other physical space abroad with tech talent opened to expand the development of software products and/or services & cut costs. ODCs are usually set up in countries with a massive pool of tech talent, favorable business climate, good price-quality ratio and lower cost of living.

Setting up an offshore development center in a country you’re not familiar with requires delving deeply into every aspect. And this is where the first inklings of future difficulties appear. You know nothing about the legislation, the tax system, office rent or even where to hire a receptionist and how much you should pay them. Given the long-term nature of your goal, you are set to figure things out as they come along.

Little did you know that:

• The country’s bureaucracy makes setting up just a basic office for a foreign company an ordeal;
• You will never manage to deal with legal regulations of working with local and foreign entities;  
• Office premises repairs are a spending horror show;
• Equipment and furniture acquisition, as well as all administrative tasks are a turmoil without a trusted local partner;
• Recruitment platforms where you can find good developers are communicated in the local language;
• The vast majority of tech engineers have profiles neither on job-seeking platforms nor Linkedin, and you’re left aside if you do not have well-established social connections with the tech community;
• Local software engineers are bombarded with job offers. And you have already lost a few candidates right after the interview because you wanted to take your time.

It quickly becomes apparent that you are pulling off the impossible and you cannot do without insider expertise. You hire a local consultancy to help you with legal and financial regulations and ask them to give your case their best shot.

Even if you luck into the perfect advisor, you soon realize that it will take you many months before your offshore development center is ready to operate.

An offshore development center (ODC) model is a dedicated team model that helps businesses minimize expenses on software development. ​​Entering into a foreign company’s talent pool also grants a foreign company several benefits, from lower labor costs to highly skilled software developers.

Read more: Foreign Companies in Ukraine with R&D Centers

Grid Dynamics takes charge of candidates’ prescreening, interview organization, and helps you run the interviews once we get the specific requirements regarding the preferred candidates’ experience levels, skills sets, and technology stacks. We also help you deal with all the legal issues, provide your newly-established team with a comfortable office space and provide you with an HR/Client manager who will provide you with support and answer any questions you might have.

If you want to have your own control over your ODC center, but you see you cannot pull that off yourself, we can help you by offering the alternative — building up a remote development team lean and fast. You will have your own development center in fact, but you don’t have to jump on a plane and spend twice more time on site than at home figuring out every moment. With Grid Dynamics, you’ll have your team up and ready within just 8-12 weeks, which is five times faster than opening an ODC on your own.

By cooperating with Grid Dynamics you actually have your offshore software development center on time and material basis without the need to spend on office space, support staff, and recruitment, deal with the local legislation and tax systems. Grid Dynamics offshore software development model provides you with control over the development and management processes. You hire as many developers as you need today, and scale up as your growth plans require.

• Your team with all services, within one of our office buildings. 
• Top tech talent. We thoroughly pre-screen developers based on your requirements. You then personally interview and approve the best candidates as members of your offshore team in Ukraine.
• Direct management. You personally manage the offshore team using your preferred methods and tools.
• A single stakeholder. Instead of establishing connections with a variety of suppliers: from stationery goods and office rent to financial service providers and tax authorities, you communicate with a single stakeholder.
• No back-office hassle. For a flat monthly fee, we set up everything needed for your development center: office premises, workstations, office management, handle payroll, taxes, HR, and retention.
• Corporate benefits. Your remote development office employees have a full package of corporate benefits sought for across the IT industry in Ukraine and attracting top talent: medical insurance, learning and development opportunities, corporate events, teambuildings.  
• Commitment. It’s your own office, so your team works exclusively for you, and they’re motivated to deliver high-quality work.
• Dedicated contact person. You work with a dedicated HR/Client Manager who helps you build effective working relationships with your developers. They are always there in case of questions and emergencies.
• Cost efficiency. Our single fee includes all cost items you’d have to spend while opening an offshore ODC yourself. 
• Minimized risk. We are well aware of local pricing margins, so we do not risk overpaying which is more likely to foreigners who don’t know the market.
• Flexibility. You can increase or decrease the size of your offshore team with only one month’s prior notice.

Offshore Development Center Checklist

“My goal was to have about 15 people working with us by the end of the first year, and we were able to ramp up effectively to that level. Since then we have continued to grow to about a 50-person team. Because of our requirement with Scala, I searched what areas it was more popular in and settled on Eastern Europe. 

All of the work that they deliver for us is well built and functions very smoothly, so we have been able to entrust them with just as much of our portfolio as our in-house team. Technically, they are the best remote team I have ever worked within 20 years of experience.”

CTO and Co-Founder of a private security software company. 

Eastern Europe continues to be a hotbed of growth and a wealth of opportunities to set up a dedicated offshore development center. Companies are often surprised by how fast they establish their remote offices in Eastern Europe and get new hires on board ready to start delivering high-quality results.

Apple, Google, Skype, Microsoft, IBM and other global giants have already opened their remote R&D offices and experienced the benefits of Eastern Europe:

• Vast talent pool
• Higher-end, innovation-focused engineers
• Alignment with the Western culture
• High English proficiency within the tech sector

Talent, talent, and again talent — this is a key advantage of Eastern Europe. As of 2020, there were over 2 million people employed in the IT sector. Over time Eastern Europe’s geopolitical context made its citizens outstanding problem solvers and innovators capable of bringing East and West together while having good relationships with both. The region’s solid engineering potential stems from decades of profound technical education, one of the main reasons Eastern European tech workers rank among the best software developers in the world.

The high-end tech capabilities of the region are complemented with moderate and affordable rates, making the region a sweet spot for a perfect quality-to-cost balance for an offshore dedicated center. Instead of spending $100+ per hour in the US, you will have an offshore development service for as much as $55 per hour total cost, while keeping high standard quality. And while there are still locations with lower rates,  companies realize that choosing low costs at the expense of quality, results in increased risks and added stress.

At Grid Dynamics we’ve been providing offshore development center services to global clients for over 15 years. Our clients include small, medium, and large businesses operating across a number of different industries. Whether you’re a small startup or a multinational corporation, we offer offshore development center best practices tailored to your needs.

From the outset, you will have a software development center, but with a single stakeholder, one centralized fee, and no hassle.