To stay ahead in the technological race, IT businesses strive for rapid expansion and growth. Moving beyond traditional IT outsourcing, they seek alternative solutions to work with committed talent and make a mark in foreign markets. One such approach involves building a dedicated development center. Could this business model be your tech game-changer?
I’m Dmytro Ovcharenko, CEO at Alcor with vast expertise in offshore development strategies. At Alcor, we help Western product companies build their own R&D centers with full back-office support in Latin America and Eastern Europe.
In this article, I will provide an in-depth explanation of a dedicated software development center model, including its structure, functions, and types. I’ll also explore key indicators signaling your business’s readiness for this model, address common establishment mistakes, and present a secure solution to streamline this process effectively.
What is a Dedicated Development Center
A dedicated development center or DDC is a development office with a team of software engineers in another region or country.
Unlike outsourcing or outstaffing, this model offers the capability to hire in-house programmers exclusively dedicated to the company’s product. Thus, a DDC functions as a seamless extension of the company, with the development team working as an in-house crew under your brand, ensuring a cohesive and integrated approach to product development.
Industry leaders such as Google, Microsoft, Sift, Intel, IBM, Oracle, Facebook, and others have already embraced this model, establishing their dedicated software centers in Latin American and Eastern European countries.
Dedicated Development Center Structure and Functions
Structure:
Office
The office is the core of a dedicated center that provides physical space for product development. Here, your software engineers accomplish their tasks, meet up with their colleagues, as well as brainstorm ideas to enhance the product, efficiently track progress, and analyze and solve issues. A typical IT office setup involves negotiations with a landlord, signing lease agreements, arranging working spaces, and managing hardware and software to create an efficient environment for productive work.
Engineering team
Another integral component of your dedicated software center is a software team. Just like with your on-site crew, a remote development team comprises a range of roles: team & tech leads, frontend, backend and/or full-stack software developers, QA testing engineers, UI/UX designers, and other talents adept in various tech stacks. Ultimately, the decision to determine the size and composition of your team rests with you.
Operational support
Back-office operations, including IT recruitment, HR payroll, tax services, accounting, legal & compliance, and employer branding, serve as the backbone that ensures the seamless and successful management of your dedicated development center. While it may initially seem like a burden, numerous IT companies opt to delegate these operations to a local service provider. This strategic decision allows them to focus on their product development while ensuring these critical functions are handled with expertise and efficiency.
Functions:
Focus
Opting for the DDC model empowers tech companies to zero in on specific projects, whether it’s web, application, or other development areas. With their own DDC, these companies free up resources of on-site teams to allocate them to strategic tasks while the dedicated remote crew efficiently handles other intricacies of project development.
Cost-optimization
A pivotal function and primary benefit of the DDC model is inherent cost-effectiveness. That’s because tech companies directly manage all internal processes, unlike traditional outsourcing and outstaffing. The underlying rationale is clear: outsourcing providers frequently impose high markups on programmers’ services, selling mid-level developers‘ expertise at senior rates, billing for services they may not consistently deliver, and introducing additional costs for implementing fixes or changes to the product.
Rather than navigating these cost implications, IT companies choose to build their own teams of skilled developers, particularly in sought-after destinations like Latin America and Eastern Europe, where salary rates are 2-3 times lower than in the US and Western Europe.
Full control
Unlike outsourcing or outstaffing, where control is shared between the client and the provider, a dedicated office ensures direct oversight over the engineering team and software development. This autonomy empowers companies to implement their unique vision and corporate culture seamlessly, make real-time decisions, and navigate the development landscape with precision.
Own branding
When a team operates under the employer’s brand, it adapts seamlessly to the corporate culture, feels directly involved in your business, and develops a strong sense of ownership over the product. This alignment enhances team cohesion and fosters proactive team players who contribute creatively and dedicatedly to the development process. This integrated approach not only improves the work atmosphere but also leads to more effective and innovative project outcomes.
Data Security
With your own development office, you have complete control over your team and engineering processes. The product development remains shielded from third-party interference, significantly reducing risks to your intellectual property rights and data leakage. One more good news is that as an offshore branch of your office, it doesn’t need extra security or compliance tracking.
Flexibility
DDC also empowers companies with unparalleled flexibility and offers the ability to tailor their remote team to the needs of their product. This adaptive approach ensures a scalable and responsive workforce, allowing for seamless adjustments in team size, skill sets, and project focus.
Signs Your Business is Ready to Use a DDC Solution
Now, let’s have a close look at the key markers that signal your business is ready to set up a dedicated development center.
You need to extend your team
Suppose you find your current team stretched thin and need additional skilled talent to bring your ambitious plans and innovative ideas to fruition. In that case, it clearly indicates that your business is ready for a dedicated development center. Expanding your team through a DDC provides the required expertise and ensures scalability for larger projects to meet growing demands effectively.
You want to cut down costs
In the global landscape, engineering roles are recognized as top earners, posing a challenge for businesses to allocate substantial financial resources towards meeting the salary demands of the US talent. This scenario raises the question: “Does it mean that cost reduction becomes an unattainable goal?”
Well, the answer is no. Establishing an office abroad is renowned for its cost-effectiveness, enabling substantial savings mainly through the engagement of a lower-paid labor force. For instance, senior full-stack software engineers in Poland earn around $73K a year, while their counterparts from the US get $153K. A significant difference, right?
Yet cost-efficiency extends beyond salary rates, encompassing reductions in operational expenses related to technical equipment, office leases, facilities, and maintenance. Meanwhile, the savings can be used for product enhancement, employee retention programs, further expansion, etc.
You plan to expand into an unfamiliar market
If you’re planning to expand your business into a foreign market, where you have no expertise in terms of local legislation, taxation systems, and other aspects of business registration and running, setting up a dedicated development center is a strategic move. To successfully enter unfamiliar markets, it’s best to cooperate with a reliable partner that understands the local market and can adapt to diverse business needs. In such a way, the company not only legally expands its operations but also saves time and money.
Considering new markets for your expansion? Read our article on software outsourcing to Romania to make informed decisions!
Types of Dedicated Development Center Models
Build-operate-transfer DDC
The BOT model in the IT industry involves setting up a dedicated development center with an engineering team in another country. As a rule, it’s realized through a partnership with a local vendor that handles recruiting, legal compliance, payroll, accounting, and other day-to-day operations of the offshore software center. After this, there’s a planned transition, and the DDC is transferred back to the client. However, this stage of the BOT model presents certain drawbacks, such as disruptions in the transfer of expertise, processes, and team dynamics, which lead to productivity setbacks and miscoordination.
Hybrid DDC
The Hybrid DDC combines an on-site development team, situated in the customer’s country, with a remote team operating from other location(-s). That’s what Ledger, a French software company, decided to do.
Partnered DDC
Through a partnered DDC, the company sets up its own office in a foreign location, complete with a team of full-time software developers. Unlike the BOT model, the office, people, documentation, and IP rights are under the client’s control right from the start. This approach is facilitated by a dedicated development office services provider responsible for recruitment, HR payroll, legal & compliance, office maintenance, and other back-office operations. At the same time, product development, decision-making, team management, and other core operations remain on the client’s side.
Mistakes in Building Dedicated Development Centers
Engaging several service providers at once
Some companies that decide to build a dedicated development center may engage various service providers simultaneously to perform different functions. However, it’s a failing strategy as it often results in miscoordination and delays, leading to subpar outcomes and increased expenses.
Alternatively, consider partnering with a local BPO service provider that can handle all back-office operations, ensuring the seamless running of your development center.
Neglecting employer branding
Neglecting to showcase your company during market entry can result in rejected job offers from potential candidates. When the candidates don’t know enough about your company as an employer, its values, and growth opportunities, they might choose other options.
To prevent this, it’s crucial to portray your company as an attractive workplace through a powerful employer branding campaign that encompasses a compelling employee value proposition (EVP), strong presence in the local developers’ communities & tech media, and powerful SMM and PR campaigns.
This not only grabs the interest of potential candidates but also makes it more likely to hire successfully by matching their professional aspirations with the opportunities your company provides.
Ignoring office details
Selecting the optimal premises, balancing quality and cost-effectiveness, is not a piece of a cake, especially when establishing operations in an offshoring country.
It’s so easy to overlook such essential aspects as ventilation, electrical systems, soundproofing, and utility connections. Landlords might also seek higher rentals, making it crucial to conduct thorough research on local prices, considering factors like location, premises type, renovation, and infrastructure.
Local regulations and lease structures further complicate matters. To navigate these challenges successfully, my advice is to collaborate with a local service provider. Their legal expertise can efficiently handle real estate matters, ensuring a smooth launch for your DDC.
No IP rights protection
Signing a non-disclosure agreement (NDA) is a crucial step in the successful establishment of a DDC. While hiring your own developers can mitigate common risks associated with IT outsourcing, safeguarding your core asset remains paramount. Considering that each Latin American and Eastern European country has its unique legal intricacies, it’s essential to carefully assess every detail to ensure the best protection for your company.
Seeking assistance from local lawyers can be invaluable in this regard. Their expertise can help navigate the legal landscape, ensuring that the NDA is comprehensive and tailored to address specific nuances of the region.
How Alcor Sets Up Dedicated Development Centers
Opting for a dedicated development office is a perfect choice for technology companies seeking expansion to unfamiliar locations. For this purpose, consider partnering with Alcor, a dedicated development center provider.
Here’s how it works:
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Full-cycle IT recruitment
Our tech recruitment department comprises 40 experienced headhunters operating in both Eastern Europe and Latin America. They oversee the entire recruitment process, handling everything from sourcing candidates to concluding the onboarding phase. First, we meet with a client to define the profile of an ideal candidate. Afterward, we help clients craft an employee value proposition, create catchy ads, and initiate the search for eligible candidates. Our IT recruiters then conduct job interviews, run technical screenings, and assess developers’ English skills. Finally, we present the most suitable candidates to you for the final decision.
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Employer of record
HR payroll and accounting are integral components of operational management for your overseas software center. With Alcor’s EoR service, you can forget about handling salary payments to your remote software team, tax services, accounting, and aspects like health insurance and leaves.
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Legal support
Our team of lawyers is here for you to help you with legal compliance, NDAs, a dedicated development center lease agreement, etc. No matter the country you decide on, Alcor is here to support you with tax planning, tax returns preparation & M&A deals, as well as to ensure the transparency of your business processes.
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Office lease
While our recruitment experts assemble the ideal team for your company, our dedicated real estate managers initiate the search for an office space tailored to your needs. From location preferences to amenities like parking, security systems, and office infrastructure, we cover it all. For those preferring remote work, we support home office arrangements, providing flexibility to meet diverse preferences.
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IT infrastructure setup
Our dedicated development center services also include procuring essentials for your new office, aiding in the selection of furniture, and establishing a robust IT infrastructure. From computers to security systems, servers, remote teamwork, and communication tools, we ensure a seamless setup for your DDC.
Alcor is a Global DDC Service Provider
People.ai decided to establish its own DDC and sought cooperation from a trustworthy partner to handle its back-office tasks as it entered the Eastern European market. This led them to Alcor. In just a month, the company had its brand-new office launched. In 12 months, our IT recruiters took care of hiring 25 software developers for its team, 50% of whom were AI engineers with machine learning, Computer Vision, and other skills. Apart from that, we provided the client with other dedicated development office services like legal compliance with both American and local laws and transparent payroll for the team. This includes furnishing detailed financial reports that clearly outline all expenses and costs. Now boasting over 125 employees, People.ai has big plans for future growth.
We specialize in helping product tech companies set up their research and development centers in Mexico, Colombia, Chile, Poland, Romania, Ukraine, and other Latin American and Eastern European countries. Offering comprehensive operational support, we‘re your all-in-one solution for establishing and running your R&D office. Our clients benefit from a dedicated account manager and an impressive CV pass rate — four out of five candidates introduced secure interview invitations. In addition, Alcor offers transparent pricing, so you pay only for the services used without any buy-out or hidden fees.
Eager to give it a try? Contact us for more information!