Software development has become essential to business growth and innovation in our technology-driven world. However, you may face a crucial dilemma: should you pick software development outsourcing or handle this operation in-house?
Whether it’s to create a custom IT solution, develop a mobile app, or improve existing software, your choice is critical. In-house and outsourced software development have distinct pros and cons, and whichever you select may dictate your long-term success.
Understanding the difference between in-house software development vs. outsourcing can help you make a more informed decision. So, let’s differentiate these concepts to determine which option best fits your company.
What is Outsourced Software Development?
Outsourced software development involves hiring a third-party service provider to handle your software development operations. The services can include making software for your own business or looking after software for your customers.
It also offers an excellent alternative for companies wanting to streamline project completion for tasks that don’t require their direct involvement. This setup is rapidly gaining popularity, with Deloitte observing a 5.1% compound annual growth in IT outsourcing spending in recent years.
Pros
• Cost-effectiveness
Cost control and reduction is the primary reason why companies outsource processes. You can pay for Employer of Record (EOR) services depending on your back-office processes and operations‘ demands.
• Flexibility
Errors are costly when developing new technology, as corrections consume valuable time and effort. Fortunately, back-office outsourcing provides flexibility for mistakes and other risks. Service providers can accommodate sudden project developments without rebuilding anything from scratch, saving precious resources.
• Scalability
Outsourcing organizations typically have large talent pools, enabling them to ramp up staffing when needed to scale up due to increasing workload. Conversely, they also reduce your external team if you need to cut costs or during periods of low demand.
Cons
• Communication challenges
Handling outsourced software developers and engineers can be challenging if they come from different linguistic backgrounds. It may cause communication problems, especially if they have poor English skills or significant time zone differences that make correspondence difficult.
• Quality concerns
Although most outsourcing companies provide high-end services, there are also a lot of those that hire ill-equipped talent. Some even pitch an excellent team first, then transfer the project to less experienced developers—the good old bait-and-switch.
• Limited control
Outsourcing software development tasks means surrendering a significant part of your work to a third party. You may have limited control over their operations, potentially leading to subpar products that don’t meet your goals and vision. Furthermore, if you choose to outsource overseas, you must consider labor laws to avoid tarnishing your reputation.
What is In-House Software Development?
In-house software development (or insourcing) involves creating programs and apps using your company’s resident experts. This approach provides complete control over your development operations without help from an employer of record. In-house development also eliminates security concerns, linguistic and cultural barriers, and quality issues that can arise when working with an outsourced team.
Pros
• Efficient communication and collaboration
It’s easier to stay in contact with your in-house software development team, whether in an office or remote setup. Communication is less burdensome thanks to the lack of significant language barriers and scheduling conflicts minimizing the likelihood of misinterpretations.
• More control
Insourcing gives you total control of your team’s composition, ensuring your hires know the project’s ins and outs. You can also comprehensively observe their work and measure their progress anytime so that the end product comes out exactly as you envisioned.
• In-house expertise
When you insource staff, you’ll be handling professionals who are verifiably experts in their field. You’ll be able to hand-pick your employees and train them in your niche to bring their best skills to the table.
Cons
• Higher costs
Building an in-house team means spending on every new hire’s recruitment and training costs. You’ll also have to cover overhead expenses, including career advancement, paid leaves, employment taxes and contributions, and equipment, which can quickly become expensive.
• Scaling issues
Accommodating demand fluctuations takes much work. When the workload is high and you need more employees, you’d have to undergo a lengthy, expensive recruitment process and provide training to get new hires up to speed.
• Staff churn
The tech industry currently faces high employee turnover, so there’s a good chance that most of your in-house staff will leave the organization. Meanwhile, retention strategies, like better compensation and career advancement, could burn a hole in your finances.
Outsourcing Software Development: Facts and Statistics
Given the above comparison, outsourcing software development is turning out to be a better choice than insourcing, especially if you want efficient and affordable solutions. Let’s discuss some figures demonstrating its effectiveness to nail this point down further.
• 83% of top IT companies are considering outsourcing their security (Syntax)
In their 2021 IT Trends Benchmark Report, Syntax mentioned that cybersecurity tools are no longer enough to keep threats at bay. To address this problem, most global IT leaders plan to elevate their security practices by outsourcing data protection operations to managed service providers (MSPs).
• The Asia Pacific region is the fastest-growing managed services market worldwide (Statista)
By 2027, the global managed services market is projected to exceed $300 billion, with the Asia Pacific (APAC) region emerging as a key player. APAC includes East Asia and Oceania nations, including top outsourcing hubs such as China, India, Thailand, the Philippines, and Vietnam.
• 9% of the Philippines’ GDP comes from the BPO industry (Matchboard)
Business Process Outsourcing (BPO), including IT management and services, contributes nearly 10% of the Philippines’ gross domestic product (GDP). The combination of a low minimum wage, a high literacy rate, a robust job market, and English proficiency make the country an ideal outsourcing hub for cost-effective software development solutions.
• $18,200 is the average annual salary of a software developer in Manila, Philippines (Glassdoor)
Glassdoor pegs the annual average wage of a software developer in Manila at ₱84,500 per month, which translates to roughly ₱1.014 million or $18,200 annually. Meanwhile, a US-based developer earns an average of around $88,461 per year—a staggering 131.75% difference!
These figures prove that outsourcing is more affordable than insourcing, especially if you’re from a country with a strong currency.
Why Outsourcing Software Development Works Better
IT outsourcing has gained significant popularity in recent years. Statista reports that the industry has a staggering annual growth rate of 8.07%, indicating its benefits to companies.
The advantages of outsourcing are undeniable, so much so that it’s usually the better choice in the in-house software development vs. outsourcing software development debate. So, it’s only a matter of time before third-party providers become in charge of most software development operations.
With that in mind, here are some ways this setup enhances your services to help you deliver solutions that align with client needs and expectations.
• Augments existing capabilities
Outsourcing doesn’t imply replacing your in-house team; it should complement your existing capabilities by providing additional resources. It allows your resident developers to handle large-scale or specialized projects while leveraging your organization’s internal strengths. By partnering with external providers, you can effectively bridge skill gaps and overcome resource constraints.
• Adopts new tech and practices
Experienced third-party developers have exposure to various clients and projects, so they’re usually at the forefront of industry advancements. They can contribute cutting-edge tech and best practices to elevate and streamline your software development operations.
• Streamlines project delivery
Accelerate projects and enable faster delivery times by leveraging external teams. Their primary purpose is software development, enabling them to have established processes and workflows for efficient time-to-market.
Reap the Benefits of Outsourced Software Development
Outsourcing software development operations is gaining widespread popularity in the business landscape due to its numerous advantages. It offers cost-effectiveness, efficiency, and flexibility while complementing in-house teams by augmenting their existing capabilities and filling skill gaps to handle more demanding tasks.
Frequently Asked Questions (FAQs)
Q1: What is the primary advantage of outsourcing software development?
The primary advantage of outsourcing software development is cost-effectiveness. By outsourcing to skilled professionals in regions with lower labor costs, companies can significantly reduce expenses associated with recruitment, training, and operational overheads.
Q2: How can outsourcing software development streamline project delivery?
Outsourcing software development streamlines project delivery by tapping into established processes and workflows of external teams dedicated to software development. This expertise allows for faster development cycles, efficient time-to-market, and ultimately accelerated project completion.
Q3: Are there concerns about quality when outsourcing software development?
While most outsourcing companies provide high-quality services, there can be concerns about the quality if the outsourcing partner lacks the necessary expertise or uses inexperienced developers. It’s essential to carefully choose a reputable outsourcing partner to mitigate any potential quality issues.
Q4: How can in-house software development provide better control over projects?
In-house software development provides better control over projects by allowing companies to have direct oversight and supervision of their team’s composition and work. This ensures alignment with project goals and enables real-time adjustments to meet desired outcomes.
Q5: In terms of costs, how does in-house software development compare to outsourcing?
In-house software development typically involves higher costs due to recruitment, training, overhead expenses, and employee retention efforts. On the other hand, outsourcing offers cost savings by leveraging skilled professionals in regions with lower labor costs, resulting in a more budget-friendly solution.
If you’re seeking industry experts to oversee your IT operations, look no further than One CoreDev IT. As the leading Employer of Record, we provide a range of services, including back-office offshoring and outsourced project management. By partnering with us, you can ensure smooth operations and secure long-term success for your organization.
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