#Entrepreneurship #Guides | 9 min read | Updated: 8/16/2022

In-House Development vs Outsourcing: Pros and Cons Based on 2022 Data and Statistics

Updated: 8/16/2022
, Chief Strategy Officer of Sloboda Studio

In 1989, the competition between in-house development vs outsourcing started when Kodak transferred its software development to third-party suppliers. 

Until then, companies hadn’t dared to outsource information technology. Later after Kodak, other big companies followed their example and focused more on companies’ core competence, transferring software development to outsourcing providers.

Today, in 2022, choosing a suitable business cooperation model is still very much relevant. 

The Sloboda Studio team has 12 years of experience providing clients with software development outsourced services.

So, we compared both cooperation models to guide entrepreneurs at a crossroads of whether to outsource or hire an in-house software development team.

Pros and Cons of Outsourcing Software Development

There are many factors people ready to use outsourced services should consider:

  • Communication delays due to time zone differences
  • Security of intellectual property
  • Product work quality and much more

In 2022, spending on information software technology outsourced services will reach $1.2 trillion worldwide. So, outsourcing website and app software development is a way to save money and succeed. 

We want to inspire entrepreneurs to think about in-house development vs. outsourcing opportunities. Our Sloboda Studio team is sharing these up-to-date statistics about outsourcing in the market.

Outsourcing Software Market Trends in 2022

Source: Statista Accenture, Statista Cognizant, Statista Infosys, ModernGentlemen, What to Become, IT Outsourcing

First things first. Let’s point out the advantages of outsourcing software development in the market.

Outsourcing Benefits

Cost

Businesses can hire a cheap software development team in some countries. However, this avenue puts businesses at risk for poor project work quality and low-rank developers.

Don’t get discouraged – countries, where cost and software quality meet in the middle, need to think strategically.

Undoubtedly, software development costs depend on location. In the European market, the average software developers’ price per hour is quite budget-friendly. It varies from $50 to $85.

Studies show that the average rate in Western Europe is $55 much cheaper than in the Baltics, Scandinavia, Central Europe, and the USA, where hourly rates start at least $105.

offshore software development team worldwide

Expertise

Companies can have extensive choices of outsourcing software development partners. However, they will get the best expertise for their projects. If businesses choose in-house software development, they get a more limited choice of developers. Using outsourcing, companies gain the best expertise in various industries and technologies. 

One of the great examples of finding an experienced outsourced software development team with domain expertise is Foody, a US-based recipe marketplace.

Foody was looking for a reliable vendor with extensive experience creating successful startup marketplaces from scratch. 

Foody, US marketplace software

Foody Marketplace

After searching, the company found Sloboda Studio as a trusted outsourcing software development partner. Together we’ve built a Foody marketplace from scratch and continue extending it with more features. During our cooperation process, Foody received pre-seed funding of $1.5M.

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Timeline

Building a software development team from scratch is time-consuming. Nowadays, hiring software developers is faster. Сompanies can hire a dedicated development team for up to six weeks. It depends on development quality, rates, and software portfolio. 

Our experience shows that hiring an in-house software development team can take 2-6 months. As for the outsourced team, the right developers’ hiring can be finished in two weeks.

The company doesn’t have to waste time thinking about finding a good software developer with an outsourcing team. They already have an outsourcing company or many of them.

Outsourcing excels in its time flexibility. With such development work, business owners can outsource experts for an unlimited period. They also add software developers (web or app) and retire the project if something goes wrong.

78% of global businesses feel optimistic about their outsourcing relationship.

Outsourcing software team: pros and challenges

Offshore Outsourcing Pitfalls

Outsourcing involves risks. Companies can trust their software development partners. However, it is better to check and have proof of their reliability and qualifications. Next, we want to share some tricks that will help avoid the pitfalls of outsourcers.

Security

It’s sad to say, but fraud is everywhere. The risks of outsourcing here are that another company may steal another company’s intellectual property or data.

How to avoid it?

The most important thing is securing intellectual property. Before starting work with an outsourcing software company, draw up an NDA with a lawyer and cover every little aspect of confidential software obligations. This agreement will be a safety net that will provide trust for both parties.

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Do you know the top 10 outsourcing countries in 2022?

Deadlines 

There is a tendency for some outsourcing software development teams not to follow deadlines. Well, it is a common issue with such companies.

How to avoid it?

If an entrepreneur is too busy to keep tabs on the project, our advice is to hire a CTO who will be in charge of the technical part of the project, plus they will make sure that the whole team is not behind schedule.

Snowball Effect

There are cases of outsourcing software development when the project costs more than expected initially. The most relevant problem is that business features were not correctly prioritized. The hired company can see that you are a bit green in the software technology industry so they may take advantage of the opportunity.

How to avoid it?

As previously stated, if businessmen are not the real deal, they will be conned. So the solution is to have a technical software expert company’s side who will interact with the team.

Time Zones

There are also more difficult circumstances when the software company owners are not ready to communicate online with their employees using fashionable communication and conferences like GoogleMeet and Zoom. This format is inconvenient if the time zones are too different.

How to avoid it?

It’s nice to communicate in the same region and +/- several hours. For Europe, for example, cooperation with the countries of the Eastern region, such as Poland and Hungary, remains an ideal option. However, in most cases, the time difference remains significant. Our tips here are simple: 

1) Looking for a partner closer to your location 

2) Creating an improved communication system with the help of a project manager

Pros and Сons of In-house Development

No matter how much it’s talked about outsourcing and its advantages for business, some companies cannot decide to develop a software product outside of their company. 

Companies need to understand what actual in-house software benefits they will get in the end and what disadvantages will need to be smoothed out in the work process to avoid getting damaged.

Advantages of In-house Development

Total Control

Сompanies can easily control their in-house software development teams, set deadlines, and many more. That’s definitely a plus since entrepreneurs, software team leads, and managers have live communication and can track their in-house software progress.

Thorough Estimation

Nothing will go past if a company has its in-house software development team. Now, business owners will be able to set in-house software rules and make a check how well the tasks are done and whether a particular employee does their job.

Direct Communication

Having the same time and working in the same office allows the creation of a more straightforward and transparent in-house team development workflow. Direct communication will enable in-house developers and managers to avoid misunderstandings. It’s also helpful in solving various tech problems faster.

Disadvantages of In-house Hiring

Cost

Hiring a software development team is expensive, especially when companies want to start their online business in the US. It rarely happens when the price of a hiring software team is the same as its own in-house, then the choice is obvious. However, if companies make it possible to outsource to other countries, the savings will be long-term.

Technical Background 

An entrepreneur needs a technical software background to hire qualified in-house developers as a founder. If a businessman doesn’t, it’s necessary to hire a CTO. The downside of in-house here is that a qualified Technical Officer is hard to hire in the local area.

Building a Team 

Forming an in-house team can be quite challenging. They work closely together can’t predict how one will act. Without teamwork, the in-house software development process will be doomed. 

With outsourcing, business owners won’t have to mull over how to build a software development team. They will have a ready-made unit instead of in-house software opportunities.

Time 

Finding a suitable software developer takes time. We aren’t sure that businesses are ready to put their projects on hold with the local experts. They need some alternatives to find another one. 

Entreprecan’t can’t quite possibly predict many software complications. If companies don’t know how to make a deal with a team, it will be difficult to

  • solve tech problems
  • think about software solutions in advance
in-house software team: pros and cons

3 Things To Pay Attention To Before Outsourcing

Companies need to prepare for successful cooperation with outsourcing. Therefore, it is good to pay attention to the following points.

Dangerously Low Rates

The hiring process with low rates can be precarious. Let’s imagine that outsourced companies are offering too low rates for qualified experts. This is most likely an attempt at fraud. 

Some companies, faced with deception, stop trusting outsourcing. Businesses should know the actual rates of experts, check the conformity of price and quality. It’s vital for companies not to get into the drawdown.

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Portfolio

Outsourcing companies can tell quite a lot about themselves. However, their expertise must be confirmed by ratings and reviews. They are publicly available on Clutch, GoodFirms, and Upwork. It’s a good idea to search for works on the outsourcing company’s website. 

Let’s suppose that company cannot verify its achievements and outsourced experience. This could be a reason not to work with them.

NDA

It is possible and necessary to protect software data when outsourcing. It’s helpful by signing a contract where cooperation partners describe:

  • all the conditions of their cooperation process
  • possible compensation in case of non-termination of work or force majeure 

If the company does not describe and work out the technical aspects in the contract, this can lead to various unpredictable situations and negatively affect cooperation with a team.

Conclusion

Companies can choose two options when starting a new business product: in-house software development team or outsourcing. 

Companies should choose in-house product development if they are not in a hurry to start a project right away and launch it as soon as possible. Usually, in-house software development is chosen by big enterprises. They are ready to spend time and money building a trusted team from scratch.

Choosing outsourcing product development makes sense if a company wants to get the best experts in their industry at affordable prices. Here, business owners need to carefully consider the choice of a business partner. It’s important in getting the desired result from the software development.

If you need a trusted software outsourcing vendor, Sloboda Studio can help you. Our company has almost 12 years of experience providing software development for startups small and middle-sized development companies. Our expertise lies in marketplaces, startup development, and real estate software development. 

Sloboda Studio was named a Top 1000 B2B Service Development Provider globally by Clutch 4 years in a row. 

So, companies should think about outsourcing their products with lower costs and qualified domain expertise. 

Frequently Asked Questions

The in-house development team uses a team of experts working for one employer remote or in the office.

Outsourcing development means transferring product development to another company which can be even overseas.

In-house development is the right business model for companies that need total control of the development process and direct communication with a team. However, it’s inefficient with higher costs, a long time finding the necessary talents, and onboarding and training.

Outsourcing development is the right business model for companies that dream of quickly finding excellent experts for different technologies at an affordable price.

However, if a company does not know where and how to look for a reliable outsourcing product supplier, it may receive security risks and unstable communication.

Statistics show that outsourcing development is prevalent in 2022 and more than 60% of global companies use it on an ongoing basis (and right now), and more than 30% of US companies used outsourced product development at least once.

It is crucial for companies to determine their priorities in development and, realizing all the advantages and disadvantages of each business model, choose the best.

The main reasons for choosing in-house development are:
– entrepreneurs’ fear of interacting with modern means of communication such as Zoom and GoogleMeet’s, or other app
– desire for constant control of the product development team
– negative experience of interacting with outsourcing development in the past.

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