Before we’ll talk about one of the most popular forms of offshore development, it’s the ODC or Offshore Development Company, I offer you to get clear what does Offshore Company mean.
"Offshore" is rather an economic and geographical concept than a legal term. There is still no legislative definition for this phenomenon. This concept is widely used in tax planning for companies registered in countries that completely exempt them from paying taxes at the place of registration.
As a rule, these companies should not provide accounting or tax reporting to public authorities, they are also easy to administer and provide a high level of confidentiality. In this case, the offshore company pays taxes at the place of its "registration", in the country where the company is actually doing business.
Let’s back to the ODC. In a nutshell, ODC is an offshore center that as a client you created by hiring some developers overseas full or part-time. They work for you. They don’t work for anybody else and you sort of treat them as if they are your employees. So it’s kind of like you open up a development center of your own overseas. But another company is hosting and managing it for you.
There are a lot of benefits and some disadvantages to this model. So let’s go through the pros and cons. First, we consider the pros. The ODC model is a great value, and the reason is very simple. It’s that vendor companies love it. This is a stable kind of money maker for them. Just imagine if you got clients doing one-month, three-month projects. We’re always taking developers and moving them from one project to another. We’re dealing with start dates, end dates and customers are asking for extensions and all that.
In the ODC model, that doesn’t happen at all. You get a client, they take on a few developers and basically, you don’t even have to manage them, the vendors don’t even have to manage them. That’s a great deal for them and it’s stable. As a result you’re going to get a better price using the ODC model.
Another advantage is you get to train these resources however you like. You can have them use your tools. It’s your company culture you can set the hours, you can do just about everything as if they were your own employees. Also, you are going to have them accumulate a lot of knowledge about your product and your client and the way you do business, which is a huge value. It’s something you’re not going to get if you are doing project work. And you never know if you are going to get the same developer twice.
Another benefit is you get to choose these developers. Managers are going to send you to resume or Cvs depending on where in the world you are going to look at them, make a decision about which ones you want to interview. You can talk with them over Skype, you can send a test project, whatever you like. But you can go through a fairly ordinary hiring process if you are not happy, you can get rid of them and ask to bring in another developer. So this kind of flexibility is a huge benefit.
Another pro is when you open an ODC, in another country, in another company, that team is presumably housed in a company that is professional management. There are going to be in a real building, there are going to have computers, chairs and so on. You can pretty sure that these aren’t freelancers working in someone’s basement or they are operating a little company that looks like a big company. These are legitimate companies. They are going to pay their taxes and things like that. As a result, these companies are going to be stable.
You don’t want to have an ODC partner who is a brand, new and they are unstable and they are trying to pull resources away. The ODC model with a proper company is going to provide that stability.
Let’s look at some of the cons or disadvantages to the ODC. One of the big drawbacks is you have to manage the developers yourself. But on the other hand, it can be considered as the benefit because you get to do that but you get no help on this. The deal is that you are not going to get any assistance from the vendor company. They are going to provide the developers and that’s it. It’s a good deal if you have time and skill to do that. Managing developers especially overseas is not easy. You are going to set up training pools, you are going to have source control. So that advantage could quickly turn into the disadvantage if you don’t have time or skills to do that. Challenge is that you can’t really get into the ODC model unless you are spending above a certain threshold of money. That is somewhere in the neighborhood of $50000. It could be less or more depending on the company you are talking to. Generally, want to have at least two developers but some companies would one for at least 3-4-5 months. But some companies would do less or would need more. In general, expect $50000 in order to get into this model.
Offshore Development Center is a great model. To sum up, if you can send study work and you can meet these budget requirement, you know how to manage the team, you got the time and the energy, the skills to do that, I think the ODC model is a way to handle your offshore development.