Cost Considerations of setting up ODC in India

Setting up an ODC is a popular strategy implemented by many multinational companies as well as small-scale businesses to minimize their operational and development costs, get access to better talents and not worry about non-deferable expenses and management chores like salaries, infrastructure cost, increments and others. One of the most popular destinations for ODC globally is India. If you are trying to set up your offshore development center in India but aren’t sure of the cost estimations, we have you covered. Here is your ultimate guide on the various cost considerations and budget estimate for setting up your ODC in India – 

What are ODCs? Brief Introduction

Offshore Development Centers are dedicated businesses that provide a diverse range of dedicated development team, infrastructure and environment for facilitating the outsourced IT projects by international organizations of all scales and industries. These organizations can either outsource the entire project or specific business functions to these ODCs that work from a remote location. ODCs can work as an extended team of the client’s company with seamless collaboration between their on-site team and this offshore team. 

Why India is preferred destination for setting up Offshore Development Center? 

As per Statista, India ranked #1 as the most preferred offshore business services in 2021. India has gained this reputation and trust of being the most reliable outsourcing destination due to various benefits it provides. The pro-government policies, vast pool of skilled and experienced professionals, major cost advantages due to lower labour costs, cultural diversity and compatibility, round-the-clock development and proper development ecosystem are all reasons why India is one of the most preferred ODC destinations. 

Factors influencing the cost of setting up ODC in India

Now that you have decided India as your preferred ODC country let us understand the various cost factors you need to consider. There are many factors that influence the overall cost of setting up ODC in India. Various elements affect your budget such as infrastructure requirements, legal compliances, experience level of developers and others. By keeping these factors in mind, you can make informed decisions and have a better idea of the initial investment you can expect to make for setting up your ODC. Let’s dive right into it – 

Location Selection

India has many IT hubs and different cities have different economies that impacts the average salaries and cost of services in that particular region. Major IT Hubs like Bangalore, Hyderabad and Chennai might charger higher prices for ODC services whereas other prominent and uprising markets like Ahmedabad and other tier-3 cities can prove to be more cost-effective. 

Legal and Regulatory Compliances

You need to check for important legal aspects like compliances with company registration, taxation structure, labour laws, IP rights and other important regulations regarding data laws and industry specific compliances. These laws and compliances generally entail certain costs that need to be covered by you. 

Infrastructure Costs 

Infrastructure costs play a significant role in the overall cost estimates of setting up an ODC anywhere. Luckily India has made substantial investments in creating proper IT hubs providing a collaborative and supportive environment for ODCs. You should check if the existing infrastructure of your ODC aligns with your project requirements.  

Currency Exchange Rates

International trade runs on exchange of two or more currencies of the involved party members which can have a significant impact on the overall cost of your outsourcing project. You need to study the fluctuations in the market of the Indian Rupees and your currency to know when to outsource your project in the most profitable.

Understanding the cost considerations for Outsourcing to ODC in India

India has many financial advantages which is why outsourcing to ODCs is so attractive to most businesses. However, just because it is attractive doesn’t mean you shouldn’t try and understand the various cost factors that shape up your ODC budget and are associated with outsourcing to offshore development centres in India. Here are the major cost considerations you should keep in mind – 

Pricing Models

Most ODCs in India offer three different pricing models – Fixed Cost, Time and Material and Dedicated Teams. Each model has their benefits and limitations that aligns with varying requirements of different businesses and their needs. You should study these engagement models thoroughly to find out which one aligns to your project and see if it’s feasible for your project budget estimation.

Quality Assurance

Generally outsourcing is a process for reducing project development costs significantly. However, this doesn’t mean you compromise on quality. You should only look for ODCs in India that have proven track record in maintain quality standards to ensure your project matches the competition in your industry and reduces chances of customer complaints and issues. Here you will have to assess quality to cost ratio and make a strategic decision accordingly.

Cross-Cultural Training and Time Zone Differences

If the ODC you’re choosing doesn’t have much experience working with your native country’s teams, they might need some cultural adaptation in terms of work culture, language preference, communication tool preferences and other such nuances. You will need to consider the additional cost and time taken to train them into your work culture and the cost opportunity of it overlapping with working and development hours.

Intellectual Property Protection

Before partnering with any outsource development agency in India it is a good practice for companies to sign all legal documents and agreements such as non-disclosure agreements, service-level-agreements and compliances as per industries to safeguard themselves against data theft, leaks or other such issues that may arise. The cost associated with such legal agreements is a cost you must be ready to bear. 

Scalability and Flexibility

Most ODCs in India provide the flexibility of upscaling and descaling your team as per your changing project requirements. However, there might be additional costs for times when you need to upscale your team in regards to their training, onboarding and other important processes and descaling too in terms of making infrastructure adjustments. Hence you should clear these costs out before signing an agreement with your preferred ODC partner in India.

Hidden Costs

While considering all cost estimates to setup your ODC in India you might overlook some non-deferrable but petty expenses that could shake your overall ODC budget in the longer run. So, make sure to consider the legal fees, taxes, travel expenses, infrastructure setup costs and other variable costs to not be caught by surprise in terms of hidden costs. You should also ask for a transparent pricing structure from the ODC you are planning to outsource your project to. 

Final Words

Outsourcing your project to an ODC in India can prove to be significantly beneficial in terms of quality, productivity, dedication as well as cost considerations. However, it is important to have a proper understanding of various cost factors mentioned here and other such pointers to create your ODC pricing strategy which helps you gain more control and bargaining chip to get the best deal for your project. By conducting such an in-depth cost analysis and understanding the various factors affecting the offshoring cost to India, you will be at a beneficial position compared to all your competitors in the market.