How US Startups Hire a Dedicated Development Team Offshore

The offshore delivery center, on the other hand, is a facility or unit established in a low-cost location to work as an extended part of the company’s team. The offshore delivery center is not really a vendor model in its truest form. Engineers working from an offshore delivery center report back into the product and engineering structure at the startup, run their sprints with the same onshore team, and build the same product.

The distinction is important because many entrepreneurs confuse project-based outsourcing with an offshore delivery center. When you outsource a project, you give the scope and get the results. By using an offshore delivery center model, you are creating a team that is responsible for long-term results rather than just deliverables. 

An appropriate setup for an offshore delivery center usually entails full-stack development, QA automation, DevOps, data engineering, and sometimes even product design. The number of engineers in such a group ranges from three to five, and even up to fifty or more, without the need for the startup to be responsible for employing people locally.

There is a fundamental difference between strategic outsourcing and staff augmentation. Staff augmentation entails the addition of individuals, while strategic outsourcing entails delegating a particular function to be handled by the offshore delivery center. While strategic outsourcing entails investment at the beginning in terms of alignment and integration, it allows the partner organization to shoulder the burden of managing recruitment, among other aspects.

In contrast, staff augmentation provides rapid access to talent but places greater management and operational burden on the startup. This frequently leads to inconsistent delivery results for early-stage businesses with limited internal bandwidth. For startups looking to grow specialized teams, usually consisting of five or more engineers, with defined product ownership and organized oversight, strategic outsourcing is therefore more appropriate. 

All-in costs for offshore engineers differ according to location, experience, and whether you use a managed offshore delivery center or hire employees from an employer-of-record.

Approximate monthly fully loaded costs by region: 

The costs cover salaries, statutory allowances, employer contributions, and minimal infrastructure. The costs incurred for managed offshore delivery center costs by a third party include an additional margin of 15% to 25% over the cost of engineers, including hiring, HR, facility, and account management costs.

The costs saved by an entrepreneurial firm that downsizes its three US-based middle-level engineers earning $130,000 each by outsourcing the job to three Indian engineers who earn $50,000 a year each is about $240,000 per annum. For teams of ten or more people, savings are over $1 million per annum.

There are two primary paths: build your own or use a managed model.

Build your own: The startup registers a local entity in the target country, leases office space, recruits directly, and manages all local HR and compliance. This provides maximum control, but it will take between six and twelve months to implement and will require knowledge of the legal and human resource systems locally. It is feasible for startups that wish to have 30 or more offshore engineers within 24 months.

Managed offshore delivery center: The startup contracts with a local operator who provides the legal entity, facilities, HR, payroll, and recruitment. The startup will decide whom to hire and how to manage the team, while the operator will handle all other matters. It will take between four and eight weeks to set up this arrangement, which is more commonly used by startups with 5 to 25 offshore engineers.

In any case, three main elements are needed in the offshoring delivery center: a clearly defined technical leader offshore, who will be able to take daily decisions; well-established coding standards and deployment practices; and the communication frequency needed to keep the offshore team focused on product priorities without having to be available at all times.

There are some common traits among startups that successfully operate offshore delivery centers. Firstly, they consider the offshore employees their own employees and not contractors. Secondly, they commit to spending money on travel, ensuring that one of their onshore executives travels to the offshore center within 90 days and once every year thereafter. Thirdly, they allocate ownership of particular products to the offshore team and do not have them go through a ticket queue. Fourthly, they offer market-rate salaries to their employees.

IT outsourcing via a well-defined offshore delivery center is no shortcut; it is an intentional business model that demands as much management focus as forming an in-house team. If implemented successfully, it provides US-based startups with the capability to develop and grow much more rapidly than domestic hires can help them do, at an economic package that prolongs runway and conserves cash for product development and marketing investments.