In-house development vs outsourcing: An ultimate guide for business
October 11, 2021•4 min read
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Author: Alex Vasylenko | Founder of The Frontend Company
The 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.
In-house development vs outsourcing: Why the confrontation started
What is in-house development? Its main pros and cons
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
What is outsourcing? Its main pros and cons
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.
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.
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.
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.
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.
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.
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.
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.
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.
How to work with an outsourcing company for the first time?
Alex Vasylenko is the founder of The Frontend Company, DBC and several other successful startups. A dynamic tech entrepreneur, he began his career as a frontend developer at Deloitte and Scandinavia's largest banking company. In 2023, Alex was honored as one of 'Top 10 Emerging Entrepreneurs' by USA Today.
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