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he coronavirus pandemic has shaken up not only the medical sector and the global community. It has had an incredible impact on international business, forcing companies to act in new ways. Those rules and concepts that had reigned in the business world until the fall of 2019 have been erased. Now firms, C-level executives, and Heads of IT are facing new challenges that require a fresh approach to solving them. 

One of the most significant issues of the last couple of years is in-house development vs outsourcing. The massive digitalization couldn't have passed without a trace in the world, so more and more players on the market are thinking about hiring remote employees or collaborating with third-party partners.

In-house development vs outsourcing: Why the confrontation started

Meet Jim from New York, who has been working for a large American company. His firm is in the healthcare industry and has been around for over ten years. Jim is just a little over 40 years old, and he has been a CTO (Chief Technical Officer) for the last four years. He had a very successful experience working with the in-house development team before COVID-19. 

Due to the government's strict restrictions, however, he had to think about other cooperation models with programmers, such as outsourcing. We have prepared this detailed guide to making it easier for Jim to understand the issue and make the right decision.

Infographics showing investments in IT
Link: Planned changes to IT staffing

In this ultimate guide, Jim and other people can find out who will win in the battle of in-house development vs outsourcing and for what reasons. We think it will be an exciting journey for him and other readers of the The Frontend Company blog.

What is in-house development? Its main pros and cons

Most likely, it is already clear from the name, that in-house development (insourcing) is the process when the specialists of your company do the software development. In other words, you hire a team of programmers who come together in the office on weekdays and create the source code for your product. During such cooperation, your company does not need to engage subcontractors and independently copes with the set tasks.

In-house development vs outsourcing: Pros of insourcing

  1. No cultural differences and similar mentality. When a developer shares the same country and city, you have the same view of life. Regardless of your programmers' family tree, you have a perfect cultural match if they live in the same geographic area as you. 
  2. Direct communication. You can eye-to-eye communicate with your employees, discussing big ideas, challenges that arose in the development process, and roadblocks that came out of nowhere. For some projects, this is extremely handy because you don't have to wait hours for a reply or have an urgent meeting at Zoom, Google Meet, etc.
What do managers say about recruitment
Link: What do managers say about recruitment
  1. No language barrier. The U.S. software engineers know the language well, and they will always understand what do you mean. You don't have to think about whether the person knows some professional term or slang. Problems of communicating with native English speakers are gone.
  2. No time difference. All team members are at work on workdays from 10:00 to 19:00 (put your company's office hours in this place). The CTO always has access to particular employees and can better control the work processes. 
  3. A quick exchange of information and fast updates of the project at the office. This benefit is directly related to points 2 and 4 of this list. When you don't have to wait for a response, you can fix bugs or make code changes in real-time; that's a huge upside. In this case, insourcing is a significant time-saver.

In-house development vs outsourcing: Cons of insourcing

  1. A long time to hire a specialist and the high cost of recruiters' services. Nowadays, all the processes of hiring experts have become longer, no matter the tech stack of the dev. The software development engineer job is one of the top 10 professions with the longest interviewing process. On average, in the U.S., it takes almost 41 days to interview this category of pros. Not every company has the energy and time to search for an in-house specialist on its own. That is why firms go to recruiting agencies and pay 10 to 30% of the programmer's annual salary.
  2. Too high expert salaries. Programmers from the USA get much higher wages for their skills and expertise. The more professional experience a specialist has, the higher their annual salary.
Infographic with statistics based on data from Talent.com
In-house development vs outsourcing: Infographic with statistics based on data from Talent.com
  1. High associated costs. For working with an in-house development team, your company will have to pay enormous amounts of money each month, not related to developer salaries. First of all, you will have to spend money on office rent, buy high-powered desktop devices (sometimes even a few) for your workers, and pay annual bonuses. Besides, when choosing this cooperation model, you have to consider taxes and health insurance for your employees. Perhaps the costs are one of the main reasons why in-house development vs outsourcing is an issue.
  2. There is a significant shortage of IT professionals in the U.S. Recently, only 6 out of 10 positions needed have been filled by employers. Along with the slow hiring process, the picture is strongly influenced by the enormous talent gaps. Universities cannot train the necessary technical specialists for the United States market, so many fields lack specialists.
  3. Frequent job changes. Due to the high demand for IT pros, they are not worried about switching from company to company. For the employer, the tendency for staff turnover is not good. They have to regularly search for new people to join the team and pay for the services of recruiting agencies.
Companies that choose insourcing
In-house development vs outsourcing: Companies that choose insourcing

What is outsourcing? Its main pros and cons

Outsourcing is a model of cooperation using outside resources (talented programmers). A firm that has chosen to grow its project engages specialists with the necessary skill sets from outside the company. Some may hire experts for outsourcing to work remotely in their country (onshore), in nearby countries (nearshore), or on another continent (offshore). The outsourcing company may also take over some business processes or build the application/service architecture from scratch.

In-house development vs outsourcing: Pros of outsourcing

  1. Many talented developers. There are 7.7 billion people in the world, and about 25 million of them are programmers. According to Evans Data Corporation's analysis, the number of devs will reach 28.7 million by 2024. For comparison, the DQYDJ reports that in North America, there are about 4.4 million software engineers. It is not a small number, but in the case of finding a specialist with experience in a difficult niche, the search may take a long time. The cause is the lack of IT specialists in the U.S., which was mentioned earlier.
  2. Reasonable prices of services. We cannot say that the services of programmers in other countries are almost free for customers. No, it is not. However, the rates of coders from different parts of the world can be noticeably lower than in the United States. At the same time, the quality in many cases remains as high as that of U.S. developers. More often than not, the financial factor wins the fight between in-house development vs outsourcing. If you get high-quality source code, why pay more?
Note: You should know that you should not choose a team based only on an hourly rate or a fixed price, despite the cost savings. 
  1. No problems with recruiting. Most likely, the outsourcing company already has a great team of programmers. For this reason, you do not have to go through the complicated process of finding and employing an expert on your own. Even if the specialist you need is not available, the hiring process in many countries is twice as fast as in the United States.
  2. There are many universities and colleges abroad where programmers get an excellent education. This list includes not only the top universities in Britain, China, and Singapore. Belgium, Germany, Belarus, Ukraine, Chile, Mexico, and others also have a solid technical base. So, most of the specialists in outsourcing companies have a great tech stack and experience.
Average developer hourly rate
Link: Average developer hourly rate
  1. More opportunities to scale up and cut down on the programming team. One of the top advantages of outsourcing is extending and scaling down the developers' team at any time. If you need help with a project for a certain period, outsourcing is the best way to go. You are free to stop cooperating with the programmers right after you finish a specific task. When a project grows and evolves, you can as quickly increase the number of coders.
  2. Excellent time management. Outsourcing companies have a well-thought mechanism for controlling deadlines and providing a perfect self-management of programmers. Usually, such firms use software to track the time spent on a task, monitoring the stages of completion of a particular job. As for an in-house coders' team, you will have to worry about time-management issues and push the developers yourself.
Most companies are satisfied with outsourcers
Link: Most companies are satisfied with outsourcers

In-house development vs outsourcing: Cons of outsourcing

  1. Time gap and cultural differences. You have to keep in mind the weaknesses of outsourcing. Quite often, different time zones do not allow you to interact with the developing team conveniently. Moreover, you might face an entirely new mentality. Be aware that even the best experts can be quite unlike you in their daily routines, communication culture, and business practices.
  2. Dependency on a third party. You are slightly dependent on another company. The person hired by this model is not part of your firm, so the risks remain. For example, your cooperation with the partner can suddenly end, or the developer unexpectedly decides to change the job. For you, it is not a win-win situation. 
  3. Security issues. You need to take care of the safety of the source code beforehand. Working with an outsourcing company is not as risky as working with a freelancer or subcontractor. Nevertheless, you are better to clarify essential points with your third-party partner, sign a nondisclosure agreement, etc.
Companies that choose outsourcing
In-house development vs outsourcing: Companies that choose outsourcing

How to work with an outsourcing company for the first time?

Check the mentality in a country where you want to outsource your project: To avoid cultural misunderstandings between you and the programmer recruited, pay attention to the closeness of your cultures. For example, a European way of doing business is much closer to the U.S. than a Southeast Asian or Chinese way of working. Pick countries with which you have a lot in common and similar roots.

Find out which tech stack specialists are the best in a particular country: Before making a partnership, look at the top tech universities in your partner country. What type of technology do universities specialize in? What kind of technology do they teach in technical schools? Also, read the statistics about programmers beforehand. 

Take a look at the company's portfolio and the reviews of other clients: Always ask for testimonials and case studies to understand the skills and capabilities of the firm. If the team has done challenging projects or worked on products from your industry - earlier, it is a good sign.  Feedback from other partners of the outsourcing company can help evaluate the strengths and weaknesses of the chosen team.

Get to know the team and do a detailed technical interview: Prepare various questions and do a lengthy Q&A session to relieve any doubts about the coders' skills. During the process, assess not only hard skills, but also the devs' interest in the project and their curiosity. Rock stars in programming are deeply interested in the details of a product, its mission, and its goals.

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Check out the English level: It is an important point because of its impact on communication directly. Give priority to outsourcing companies whose attention is paid to the developers' English. This way, you will not have a problem describing the task to the specialist, getting their opinion about certain modifications, or getting ideas for the product's improvement.

Find out how the company's management is organized and how the developer's work is controlled: You cannot supervise the development process yourself. For this reason, always be sure to ask your third-party partner what software it uses for this purpose. If the work is uncontrolled, that is not a good thing. A responsible firm usually has a software program that provides time tracking, planning tasks for a week or longer. 

Request an estimate of the project and discuss possible difficulties in the working process: The product estimate service is usually free. Ask the company you like to calculate roughly how much their work will cost and why. The more detailed the documents, the more questions you get, the better. It lets you know about possible difficulties at an early stage.

How to avoid risks when moving from in-house development to outsourcing? Pt.1
How to avoid risks when moving from in-house development to outsourcing? Pt.1
How to avoid risks when moving from in-house development to outsourcing? Pt.2
How to avoid risks when moving from in-house development to outsourcing? Pt.2

After the arguments described above, the question of in-house development vs outsourcing was no longer as pressing for Jim. The experience of other people and our guide allowed him to take the first step and find his perfect outsourcing partner. Do you want not to have any worries about the things that used to annoy you before?

TFC is already helping many of its clients to solve various development-related challenges. Our clients include TraceSafe, Shopify, Leafworks, and more. For years, we've been assisting companies to extend their teams with skilled developers. The programmers of The Frontend Company help to keep the projects growing, provide support to our clients' products, and are deeply involved in the idea generation process.

Thanks to our experience in the outsourcing market, we have built a successful system, which will undoubtedly allow you to use outsourcing opportunities effectively. When you work with a qualified team, choosing in-house development vs outsourcing is no longer a problem.

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Posted 
October 19, 2021
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Outsourcing & Outstaffing
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