Every software development company experiences distress when the critical technical requirements of its projects exceed the workloads of its existing team. In such a situation, deciding between outsourcing & in-house software development becomes a real challenge!
In recent years, many businesses have shifted towards outsourcing their IT projects with the promise of cost-efficiency and high quality. Other than outsourcing, building an in-house team requires time and investment, but this could be a more suited option in some cases.
So which option to consider between in-house vs. outsourcing?
Let’s dive deep into the benefits of in-house vs. outsourcing and their challenges.
What is Software development Outsourcing?
Software development outsourcing is hiring third-party service providers to handle software development projects, which can range from developing enterprise applications or commercial software for your customers.
A report by global newswire states that by 2026, the global IT outsourcing market will be worth $425.19 billion.
An advantage of outsourcing software development is that it allows you to focus on growth & innovation. In fact, according to a study, more than 64 percent of the total IT companies outsource their software development projects.
What software development services can an organization outsource?
- UX Design: Offers consulting, front-end, and UX design services across all industries from PC and mobile devices.
- Proof of concept development: Assists in finalizing the product idea through feasibility study, proof of concept, and testing to minimize risks at the initial stages.
- Consultation services: Helps implement an optimal technological stack for consumer development requirements.
- Software testing: provides a range of testing services to develop a quick, reliable, and efficient software product.
Where can you outsource your projects?
While there are various countries across the globe where you can find software development teams that suit well to your project requirement and budget, India & Philippines are the two most fabulous offshore destinations.
If you want to know more about different offshore locations & average software developers’ rates, we have the correct information here- Software Developer Hourly Rate Comparison Across the Globe.
Top In-house & Outsourcing software trends in 2022
The growing demand for software developers & the gap in market and supply stimulates the increase in IT companies outsourcing their projects. Before making a final decision between In-house Vs. Outsource, here are a few top IT outsourcing trends that would help you understand better:
- According to Statista, there are 24.5 million software developers globally, and the number will increase by more than 4 million by 2024.
- It is also estimated that nearly 300,000 jobs are outsourced out of the United States each year.
- According to GrandViewResearch, the IT services sector is expected to be worth around $1,070.28 billion, and the IT services outsourcing market would be valued at around $8006.63 billion. Based on this data, one can estimate that the ITO market is around 75% of the IT services market.
- India’s IT outsourcing industry will witness a CAGR growth of 7.25% by 2025, reaching INR 8,830 billion ($121,335,149.20). (Outsource Accelerator) (Classic Informatics)
- 58% of the United States marketers witnessed no COVID-related impact on outsourcing their IT marketing activities. (Statista)
- Larger organizations are 66% more likely to outsource their projects than smaller businesses. Approximately 29% of the small companies outsource their projects. (Time Doctor)
- According to a report, 44% of technology executives are more likely to use outsourcing options than five years ago. (Source: Fortunly)
- The global IT outsourcing market is expected to generate $397.6 billion by 2025
- Software and application development make up 64% of services outsourced.
- 68% of US-based companies outsource at least part of the company
- IBM is the most prominent outsourcing company in the world
- The top reason for outsourcing (70%) is cost reduction.
What are the Pros and Cons of Outsourcing Software Development?
If you already have an in-house team of experienced engineers, why would you outsource software development?
There are several benefits of building an in-house team of developers, but your team might not be suited for every project. This is where the role of outsourcing comes into play. Here’s the list of pros and cons of in-house & outsource software development:
Pros of Outsourcing Software development
Let’s look at what you gain with the outsourcing your software development projects:
One of the most significant advantages of hiring a dedicated outsourcing team is saving a considerable amount of money. Hiring an outsourcing partner lets you cut hiring costs, onboard specialists at competitive pricing, save on infrastructure or invest in large workspaces and resources.
You pay the pre-defined rate per hour or total amount for the entire project as per the mutual agreement. Further, it is the responsibility of the outsourced company to cover all the engineer expenses, such as the offshore development center and work resources.
2. Short-term Commitment
It is the most underrated benefit of outsourcing. Bringing an expert on board without long-term commitments.
As mentioned earlier, outsourcing allows you to hire developers based on three engagement models:
To give you a heads-up, here is the list of resources you might need to build a software, website, or mobile app.
- Team of designers and developers
- Quality Assurance Testers
- Project Manager
- Infrastructure (Hardware and Software)
With outsourcing, you can either hire these resources separately or build an offshore development center and make it an extension of your in-house team or company.
3. Core Competencies
Hiring an offshore development team gives you immediate access to technology experts overseas, who can take care of your software development and maintenance needs so you can focus on your business’s core competencies. Hiring an offshore team saves the time, effort, and cost required to build an in-house product engineering team.
Leveraging outsourcing development services enable you to receive a third-party opinion. You are able to make more robust decisions for your core business initiatives.
4. Risk Mitigation
Leveraging offshore development services enables businesses to mitigate risks involved in a software development lifecycle, such as operational risk, schedule risk, and technical.
Partnering with an outsourcing partner means you can efficiently decrease the risk percentage since they are experienced in handling complex projects.
A legal contract permanently binds outsourcing. It includes the scope of work, NDA (Non-Disclosure Agreement), and other vital aspects like payment, time, performance, and confidentiality.
Cons of Outsourcing Software development
While dedicated offshore developers offer several benefits, it also has their downsides. Most of these problems are caused by distance or communication.
1. Lack of Control
It is the most reported concern, where companies lose the project’s traction. This may happen due to the lack of project understanding by the offshore team. This particular point will always favor the former in comparing in-house vs. outsourcing.
While you can always guide your offshore engineers, if your team is not a good listener and competitive, there’s a chance that you will lose control of the project.
You can avoid this issue by documenting your requirements, creating milestones, and project charter. This will help you find out the whereabouts of the same. In addition, offshore development centers provide you with a team that will work directly under your supervision, providing 100% visibility of ongoing operations.
No matter the deal, it is always recommended to keep a single point of contact for all your communications. Communicating with an on-site team is far easier than the offshore team.
In the case of offshore development, communication becomes complicated. If your team is located in a different time zone, you may have problems. Reliable internet connection and quality are a few other issues. If you are not getting the expected quality, outsourcing is not of benefit.
But again, it’s easy to avoid these issues by collaborating with a reliable outsourcing partner and finalizing the proper communication channels and time for meetings.
3. Data Security
Data security means protecting your confidential and sensitive data and infrastructure from malware attacks.
Failure to put data security in place leads to data vulnerability resulting in a breach of information, leakage, or deletion of critical data.
Since the outsourcing partners operate from different locations, the work is split on different servers, making data more vulnerable and exposed to cyber threats. If the outsourcing partner does not follow industry standards of coding or lacks enterprise-grade security in infrastructure, your data can get exposed to malware and cyber threats.
|#Tip- Ensure your outsourcing partners have enterprise-grade security across their IT infrastructure.|
What are the pros and cons of In-house Software development?
There are several benefits of building an in-house team of developers, but your team might not be suited for every project. This is where the role of outsourcing comes into play.
Let’s discover these pros and cons.
Pros of In-house Software Development
1. Talent Development
If you need some particular domain expertise, you can easily upgrade their skills according to their needs whenever required without going outside and searching for new talent. However, it is difficult when you are outsourcing a team.
Even if you do, you will have to invest more money than what you already pay to the in-house team to upgrade their skills. A lack of skill set reflects in the product quality later.
2. On-site Availability
Connecting helps to work effectively and reduces any misunderstandings. As the team works together within the same office and time zone, it’s easy to get the changes done more quickly. With an In-house team, one can leverage several benefits, such as
- Long term association
- – 100% visibility of work
- – IP and Data protection
- – Same work timezone
- – Better communication
3. Direct Communication
Your in-house developers work directly with your team on-site, making the communication process much less cumbersome than hiring an outsourcing team.
You can communicate easier, implement changes faster and eliminate the risk of any change while working with an in-house software development team.
Cons of in-house Software Development
If you are considering setting up an in-house team to develop your software product, be ready to deal with any of these possible challenges.
The cost to hire developers in-house is significantly higher than offshore developers. It’s simply because this cost includes the infrastructure, overhead salaries, other employee benefits, training costs, etc.
2. Lack of Talent
It is impossible to have an in-house team with all the skillsets and experience. In addition, different individuals have distinct areas of expertise. So as per your project requirements, you will have to hire someone who has expertise in your domain.
And this is where hiring outsourced developers come in, as they have an elaborate team with specialists across the technology stack who can be hired on a need basis.
3. Low Retention Rate
Due to the higher demand and luring packages offered by other companies, programmers in western and European countries keep switching jobs more frequently. Thus, there’s always a risk that your lead developer may change careers during the crucial phase of the project. Additionally, long hiring cycles are another concern that can create unnecessary delays in project development.
Why do Companies Choose to Outsource Work?
Offshore companies offer cost-effective and reliable software solutions that ensure their team will work around the clock to meet your business objectives.
1. Increase Profitability
Hiring an outsourced team to assist with software development services improves efficiency, quick time-to-market, and high quality while keeping costs to a minimum. You may be thinking, ‘how does hiring more people equate to savings?’ and the answer is simple.
Offshore development centers are usually located in countries with low wages. They provide technology specialists that may be limited in your local geography. Therefore, outsourcing enables businesses to increase their workforce much lower cost than hiring locally.
Overall, service centers don’t just provide all the critical resources; they build and nurture a positive working culture with dedication. A culture where staff is self-motivated to learn is more likely to release high-quality software solutions, leading to a positive return on investment.
2. Facilitate Growth
According to the Investopedia findings, the U.S Bureau of Labor Statistics states that 45% of new businesses fail during the first five years and 65% during the first ten years. These initial five years are arguably the most challenging and most crucial of any organization’s life cycle as ventures risk scaling rapidly.
For example, according to the McKinsey findings, mostly an IT company growing at an annual rate of 20% still deal with a 92% chance of failure.
What should be the solution then to achieve faster growth? In a competitive landscape, business success depends on several factors – it needs infrastructure and people to promote, maintain, and support growth.
Outsourcing is a quick solution to speed-up hiring and training processes and develops teams ready to contribute to organizations’ growth in a short space of time. Fast growth comes with the quick acquisition of talent, one of the critical capabilities of outsourcing services providers.
3. Access to Global Talent
In an age of mobility, outsourcing enables businesses to hire offshore developers from across the globe with diverse domain knowledge, all centralized in hub cities. Such a diverse team offers a broader pool of talent that can support numerous languages, and enterprises have access to local understanding of specific markets.
Eventually, businesses don’t need to deal with hiring bottlenecks. Instead, the outsourcing company helps find and pair the right team of developers.
4. Fastest Project Delivery
Offshore teams place a framework of the Scrum and Agile approaches and set the necessary priorities to meet the organizational business goals. This significantly reduces the Time-to-market and ensures timely delivery to the end-users.
In-house Vs. Outsourcing Software Development: Comparison
Outsourcing Software Development Can Work For You
Outsourcing software development offers a unique set of advantages and a few set of disadvantages.
The advantages include employing the efficiencies of domain expertise, reducing labor and infrastructure overheads, etc.
The disadvantages center around a lack of communication feasibility and misunderstandings. However, today’s digital ecosystem offers you access to advanced, hassle-free communication technologies that can bridge most barriers.
In addition, many offshore development centers efficiently provide offshore facilities that ensure seamless process workflow.
Frequently Asked Questions
What is in-house sourcing?
In-house sourcing provides a company with greater control over the execution of in-house tasks since it is the direct employer. However, investing in specialized full-time staff can be expensive, particularly if their work is only needed intermittently.
Which is better, in-house or outsourced?
Outsourcing software development can be a better option than handling your projects in-house. This is a cost-effective solution that provides you access to global talent.
What are the advantages of in-house and outsourced activities?
Advantages of in-house software development:
- Talent development
- Direct communication
- Internal project expertise
Advantages of outsourcing software development:
- Reduced Workloads
- No talent boundaries
- More Economical
- Access to global talent
What are the three different types of outsourcing?
There are many different types of outsourcing, including offshore staffing, onshoring, and project outsourcing.
Why do companies prefer outsourcing rather than making in-house?
When you outsource your manufacturing, you haven’t got to take on the responsibility and costs of hiring the staff required to do the job correctly.