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In-house development vs outsourcing: Which should you invest in?

In-house development vs outsourcing Which should you invest in

When starting a small tech business, you’ll definitely need extra help to perform other tasks. 

From administration tasks to marketing services, this may be overwhelming for you to do alone, and it can be too much to handle at once. 

Fortunately, the emerging work arrangements have allowed companies and employees to explore more employment opportunities around the globe. 

In the software development industry, it’s not just about developing projects. The scope of work also extends to maintenance, quoting, and customer service. 

You have two options to build your staff; in-house development or outsourcing. Both can significantly help you in running your company, but there are things to be considered first. 

In this article, we’ll guide you in choosing between in-house development vs outsourcing – and find which option is best for your business. 

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Hiring software development teams

The expansion of technology to Artificial Intelligence (AI) and the Internet of Things (IoT) have allowed the software development industry to be more advanced and redefine globalization.

Companies are continuously leveraging a pool of talented software developers as the demand for technology and digital applications continues to increase. 

This pool of software development teams is usually comprised of quality assurance engineers, project managers, UI/UX designers, or business analysts with a strong set of skills that is vital in project development. 

In fact, a projection of a 25% increase in the overall employment of software developers, quality assurance analysts, and testers is expected from 2021 to 2031, according to the US Bureau of Labor Statistics. 

There are various ways to build your software development teams. If you’re uncertain whether to opt for in-house teams or outsource, here are the pros and cons that you need to consider.  

Hiring software development teams
Hiring software development teams

In-house development 

Hiring an in-house development team simply means building your own IT team and experts from scratch.

The hired developers and designers directly work for your business, and the tasks they work on are accomplished by using the resources that your company provides. 

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In the IT industry, in-house development is similar to hiring permanent staff. A physical workspace is provided, and the current pool of developers must create a system that will be utilized to recruit and onboard other candidates. 

In-house development requires training for in-house staff for a better understanding of your company’s culture, values, and projects.  

In-house development 
In-house development

Pros of in-house development

The pros of going for in-house development include:

Genuine company culture

In-house developers are full-time employees of the company. Most of them share the same conditions, such as residence, language, and cultural backgrounds, so they don’t have a hard time mingling among themselves. 

This builds a genuine company culture as they can already comfortably grasp their work environment and workmates. This also affects their work ethic because it allows them to work faster and with much greater dedication.

Direct collaboration and communication

In in-house development, developers are more likely to be working together in the same office setting.

This allows them to be accessible and collaborative with one another and immediately address project-related concerns that will speed up a project’s progress. 

Moreover, an in-house development team promotes direct communication. Members can directly raise questions without having to wait for a response in their emails since they have access to an in-person work arrangement. 

Immediate supervision 

Supervision is important to oversee the entire progress of a project. This is especially relevant for newly developed products, as they need to be constantly monitored. 

Errors can be easily addressed with an in-house development team. Since members and their tools are already in a specific workplace, inspection and bug fixes can easily be solved. 

Cons of in-house development 

However, there are downsides to opting for in-house teams, including:

High labor cost

In-house development is generally expensive. It includes a lot of expenses like office space rent, employee wages, software and hardware, taxes, and benefits.  

Aside from workers’ basic salaries, you should also consider their sick and vacation leaves, allowances, social security subsidies, and other government-mandated contributions. 

High staff turnover

You don’t have to worry about getting the most talented employees. What you need to look out for is their persistence to stay in your company. 

Given the high demand for IT professionals, competitors are most likely to be persuading candidates with better offers and opportunities. 

Companies may address this by counteroffering their in-house workforce with an improved package, which inevitably increases their salaries and benefits. 

However, this adds cost to your company expenses, but it significantly boosts employee retention. 

Lack of expertise 

Not all individuals possess the same level of skills and experience. 

When hiring a new member of an in-house development team that lacks expertise in a specific area of study, the company should invest in seminars and training. 

Outsourcing development

In general, outsourcing involves hiring a third-party vendor to work in a service provider’s specific department, perform its tasks, and provide services to its market. 

This is a practice considered by companies as a cost-cutting measure as it’s a cheaper operational strategy than in-house development. 

Outsourcing covers a wide range of jobs. But in the IT industry, software development and maintenance are the most outsourced IT professions as of 2017, with 64% and 51%, respectively, according to Statista. 

Outsourcing software development professionals can accommodate both your company’s own market deliverables and develop your client’s requests. 

This option is also used when a workforce and service expansion is needed to cater to a wider network. Outsourced employees can handle maintenance, consultation, and quoting services, while in-house members cover actual project developments.

Outsourcing development
Outsourcing development

Pros of outsourcing development

Here are some advantages of outsourcing development teams.  

Lower employment costs

Outsourcing is popular among companies because it’s cheap and affordable. Especially in countries where the cost of living is high, this option is an advantage because it lessens their overhead costs. 

Your company can employ professionals or firms in offshore locations, where the basic salary is lower but produces an impressive level of knowledge and expertise. 

According to Diceus’ report, Eastern Europe and Southeast Asia are the best regions to outsource your IT professionals. 

Increased efficiency 

Given the expertise of outsourced employees, the project can be started right away without the need to instruct them on the basics.

You don’t need to personal conduct prior training. Your outsourcing partner is likely to have Subject Matter Experts (SMEs) that can help your outsourced employees.

More investment opportunities

Since the cost is low, outsourcing development employees allows you to invest in the other core areas of your business. 

The investment can involve improving your company’s operations through restructuring your organizational hierarchy. It can also mean upgrading your current tools and devices for the overall improvement of your services and processes. 

Cons of outsourcing development

Unfortunately, outsourcing development also poses risks. Here are the cons of outsourcing a development team. 

Prone to security issues

Most companies prioritize confidentiality above anything else to preserve data or strategies. In outsourced development, there’s a risk in this private information. 

It is because the tools and devices are usually connected to the net, which can be hacked and breached by outside entities.

Your company can avoid this through confidentiality agreements with your outsourced teams or investing in a much tighter network firewall

Indirect communication

Since most outsourced employees come from different regions, there may be a challenge in communicating with them due to differences in time zones. 

Email responses may take a few hours, and online meetings should be scheduled in a way that works for both parties. 

Another challenge that may occur is the language barrier. A difference in language between you and an outsourced team can raise issues in addressing concerns and result in miscommunication and misunderstanding. 

In-house development vs. outsourcing

There are a few factors to consider when deciding between in-house development or outsourcing. 

In building software development teams, your company should carefully analyze the allotted budget, the heaviness of the workload, and the scope of responsibilities. 

Great communication and direct supervision are the main advantages of in-house development. If you’re willing to invest more in employee perks and workplace construction to attain these, then this option will work best for you. 

Meanwhile, if what you’re after is a service with cheaper costs, outsourcing is the one for your company. 

Not only does it boost team efficiency, but employees’ specialization in the field is already guaranteed. Limitless access to the talent pool is also secured. 

In-house development vs. outsourcing
In-house development vs. outsourcing

The best way to build your development team

Thanks to the vast innovation of technology, businesses are now creative and inventive in running their operations. The rise of digital tools and the Internet itself have opened doors for companies to manage their finances and strategize their actions wisely. 

When building your development team, the ultimate choice still depends on what your company truly needs. 

Whether it is in-house development or outsourcing, careful considerations should be made as both options have their own pros and cons. You just have to weigh which you think will work best. 

Should you decide to opt for outsourcing, Outsource Accelerator provides outsourced software development services that will help your business achieve its goals. Our team of experts and affordable rates will greatly assist you in boosting your company to its full potential. 

Get started to take a step forward by building your development team today.

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About Derek Gallimore

Derek Gallimore has been in business for 20 years, outsourcing for over eight years, and has been living in Manila (the heart of global outsourcing) since 2014. Derek is the founder and CEO of Outsource Accelerator, and is regarded as a leading expert on all things outsourcing.