In-House vs Outsourcing Software Development: Which One to Choose?
According to a recent Deloitte study, 76% of American companies outsource their IT functions. What drives this trend? Does outsourcing truly win the in-house vs outsourcing development battle? In this article, we will explore both strategies, evaluate their advantages and disadvantages, and help you choose the approach that best suits your project.
What Is In-House and Outsourcing Software Development?
In-house development refers to the process in which a company independently creates its digital products. In this case, only the internal team is involved in development, without hiring external specialists.
Do you think this approach is ideal because all IT functions will be handled by a reliable development team that you assemble yourself? In some ways, you’re right. However, it also comes with significant responsibility and high costs. After all, you will need to hire and manage developers, designers, product and project managers, and other personnel. But we will discuss the pros and cons of this strategy in more detail later.
Outsourcing software development implies hiring an external team or individual remote specialists to work on a software solution. Depending on the budget size, required technology stack, and other project specifics, you can choose between nearshoring, offshoring, and onshoring. What do these terms mean?
Offshoring refers to delegating processes to a distant country, often on another continent. This is considered the most cost-effective outsourcing option, as service rates vary significantly across countries. However, such price differences do not always affect the quality of the final product.
Take a look at these impressive figures: In Switzerland, developers earn around $100,000 per year, whereas in Norway, Australia, and several other countries, this amount is nearly half as much. Does this mean that specialists in those regions are less qualified? Hardly.
Nearshoring—outsourcing to a neighboring country. Preferably one that borders yours or is at least located on the same continent. The goal is usually the same—to save on IT services.
Onshoring—hiring external specialists from your own country. What is the point? It’s simple. Even within the same state, the cost of creating an identical digital solution can vary significantly.
As an example, take a look at the salary range in major USA cities (data provided by Indeed):
- Columbus, OH – $142,605 per year
- Bellevue, WA – $137,206 per year
- San Jose, CA – $120,751 per year
- San Diego, CA – $118,932 per year
- Houston, TX – $98,751 per year
So, we have figured out the definitions of in-house and outsourced software development and also discussed the types of the latter. What are the key differences between these strategies?
In-House vs Outsourcing: Key Differences
In-house vs outsourcing development is a choice that many teams face. The fact is that there are several fundamental differences between these approaches. They should be taken into account when organizing the development process in a company.
This comparison highlights the strengths and weaknesses of both approaches to software development. However, to make these differences even clearer, let's take a closer look at the pros and cons of outsourcing and in-house development.
Outsourcing Software Development: Pros and Cons
Let’s start by looking at outsourcing software development – the pros and cons of this approach allow the global outsourcing market to grow at an impressive rate. This suggests that the cons of this approach are not so significant, right?
If in 2024 it was valued at $611.8 billion, it is projected to grow to $1,345.5 billion in the next 10 years.
Outsourced Development Pros
Teams that opt for outsourcing digital solution development can expect the following benefits:
1. Cost Savings.
We’ve already mentioned that companies can save by outsourcing to regions with cheaper labor.
However, that’s not all. Toptal has created a calculator to estimate the actual costs of hiring in-house developers and remote specialists. According to the calculations, even with the same hourly rate, outsourcing will cost the company 1.5 times less:
This is explained by additional expenses for office rent, employee training, providing necessary infrastructure, and so on.
2. Access to the global talent pool.
Finding a developer with the necessary skills can be challenging, especially in regions where the number of specialists is not very large.
Take a look at how the number of IT specialists differs in various countries:
Access to the global talent pool allows you to use the latest technologies that may not be widely available in your region.
3. Flexibility and scalability.
According to Indeed, the hiring process can take anywhere from a week to a month or more! Therefore, if you anticipate the need to expand or reduce your team, it is wiser to consider outsourcing.
It also makes more sense to consider a remote candidate for short-term projects if there is no further collaboration planned after the project ends.
4. Accelerating Time to Market.
Outsourcing allows you to reduce the time spent on recruiting and hiring specialists. Additionally, there is no need for training and onboarding the development team, which, as you’d agree, is also a lengthy process.
Moreover, you can engage several teams to work on the project. They will work on different aspects of the application simultaneously, bringing its release closer. An additional benefit is the ability to work around the clock due to time zone differences.
5. Optimization of company operations.
Outsourcing IT functions will allow you to focus on other activities, such as marketing, customer service, implementing financial strategies, and more.
Furthermore, outsourcing makes sense even if you have an in-house development team. Engaging external specialists will reduce the load on your team and allow you to implement innovative technologies that your developers may not be proficient in.
Outsourced Development Cons
Along with the benefits for a company, turning to IT outsourcing can lead to certain challenges:
1. Communication problems.
This issue is especially relevant with offshoring, when specialists are located in different time zones. Just imagine: you need to urgently address an issue, but it's outside your team's working hours. This can seriously affect the efficiency of development.
Another possible barrier to productive collaboration is different languages and cultural differences. Wouldn't it be difficult to understand your counterpart if their vocabulary is unfamiliar to you, or if they adhere to values and traditions that differ from yours?
2. Quality control challenges.
When an in-house team is working on a software product, they are clearly aware of the standards they need to follow. This enables them to create solutions that meet the needs of the audience and business expectations.
In the case of outsourced development, there is a risk of discrepancies in quality standards between internal and external teams, especially when communication gaps exist.
The result is an unsatisfactory final product, which may lead to another outsourcing drawback—as we'll discuss next.
3. Hidden costs.
If the final product quality is lacking, you’ll have to hire other specialists to fix defects. However, this problem can be avoided by working only with trusted providers.
Still, there is the risk of additional costs for managing remote specialists and the possibility of project expansion due to control issues.
4. Data and intellectual property (IP) security.
Collaborating with third parties on development involves sharing confidential information about your business and clients.
Again, only work with reliable partners to ensure they won’t misuse your data or share it with unauthorized individuals.
We’ve discussed the pros and cons of outsourcing software development. How does the situation look with the advantages and disadvantages of creating an in-house team?
In-House Development: Pros and Cons
Despite the growing popularity of outsourcing, many companies still prefer to develop software in-house. This approach also has its own pros and cons.
In-house Development Pros
Developing software internally offers the following advantages:
1. Full control over the development process.
The decision to hire an in-house team is a step towards complete control over the development process.
You can select the optimal tech stack, implement methodologies that you deem suitable, and track every stage of the SDLC and its duration.
2. Intellectual property security.
According to ABI Research, U.S. companies lose between $180 billion and $540 billion annually due to intellectual property theft.
In-house development minimizes the likelihood of this issue, as the company will be the sole owner, and there is no need to share data with third parties.
3. Improved communication on the project.
Teams working in a shared workspace experience fewer communication challenges. They are not hindered by cultural and language differences or time zone discrepancies.
This, in turn, helps avoid several problems. According to recent statistics, poor communication methods can lead to a number of losses for a company. Among these, 68% of work time is wasted, 42% of employees face stress and burnout, and 12% of customers leave for competitors:
4. Team engagement and a deep understanding of business nuances.
An internal development team is likely to be better informed about the company's values, culture, and target audience. This enables them to create a tailored solution that aligns with the client’s vision.
Additionally, in-house developers are more invested in the success of the project, as they are part of the business.
In-house Development Cons
If you are an advocate of in-house development, be prepared for some challenges along with the benefits. Here are a few of them:
1. High costs.
With outsourcing, the company only spends money on the developer’s rate. The situation is completely different with an in-house team.
We present a list of expenses to consider:
- hiring costs;
- total salary of the team;
- provision of necessary infrastructure;
- training fees for technologies;
- bonuses and benefits;
- software license purchases;
- overhead costs.
Overall, the difference between in-house vs outsourcing development can amount to hundreds of thousands of dollars. And as you can see, it is not in favor of the in-house team.
2. Limited resources.
In-house specialists may have limited experience and knowledge in specific areas needed for the project. There are two solutions to this issue: employee training, which again incurs additional costs and time, or opting for familiar technologies that are unlikely to yield the desired results.
Moreover, the lack of resources may become noticeable when scaling the project significantly. Hiring an in-house specialist is a lengthy and complicated process.
3. Hiring issues and employee turnover.
According to Statista's analytics, in 2023, 54% of organizations experienced a shortage of tech talent. And this is not the peak — two years ago, this figure was at a record-high 70%.
However, even if you manage to hire the best talents, don’t rush to celebrate your victory. You still need to retain them. And here’s where the real challenge begins. To attract a developer to work specifically for your company, you will need to offer a high salary (higher than your competitors), social benefits, bonuses, etc. In other words, you will be committing yourself to unforeseen expenses. Whether this is justified is up to you to decide.
So, we’ve thoroughly discussed the advantages and disadvantages of in-house development and outsourcing. Now, it’s time to determine which strategy is best suited for you.
In-House vs Outsourcing: How to Make the Right Choice?
In-house vs outsourcing software development—which one should you choose for your company’s success? Here are the types of projects optimal for each of these strategies:
For in-house development:
- Long-term projects. If a project requires constant development, support, and close collaboration, it makes sense to build an internal team. This is especially relevant for complex systems that are continuously evolving and require in-depth knowledge of their architecture.
- Projects involving confidential data. If you are dealing with confidential data, in-house development can guarantee its complete security. This is facilitated by better control over work processes and the absence of the need to share data with third parties.
However, as an alternative, you can turn to a reliable outsourcing provider who guarantees the security of confidential data on par with an in-house team.
- Projects that are critical for the business. These are projects that involve creating products that must fully reflect the vision, culture, and strategy of the company. If you are not sure that you can achieve this with external developers, it is better to opt for an in-house team.
For outsourced development:
- Projects with a limited budget. Outsourcing allows savings on developer salaries and related expenses.
- Short-term projects. If the team is only required to create a product without further updates and support, hiring in-house specialists is not advisable.
- Projects where quick time-to-market is a priority. Time savings on hiring and adaptation, the ability for round-the-clock work, and involving multiple teams contribute to faster releases.
- Projects with changing resource needs. Here, the ability of remote teams to scale quickly is key.
- Innovative projects. Access to a global talent pool enables the use of cutting-edge technologies that may not be well-developed in your region.
Thus, if you are looking to save costs, use an innovative tech stack, and outpace competitors, outsourced development will be the best choice for your company.
Darly Solutions—Your Reliable Partner in Outsourced Software Development
The Darly Solutions team is ready to be your guide in the world of creating high-quality digital solutions. We provide comprehensive services, including web and mobile development, UI/UX design, MVP development, QA and testing, and much more.
By outsourcing your project to us, you can be confident in our full immersion in your product vision, data and intellectual property security, and guaranteed adherence to project deadlines.
Contact a Darly Solutions manager, calculate the estimated costs, and start your journey to digitalization today!
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