Many companies when venturing into developing new software for their organization need to choose between hiring an offshore development center or hire an in-house team. While hiring an in-house team can put a dent in your budget, an offshore development center does not provide that much control over the resources.
However, choosing one becomes of utmost importance for your business to grow rapidly in this fiercely competitive market. First, you need to understand what each means, the difference between the two, and their pros and cons. So, without further ado, let’s get started.
In-House vs. Outsource Models: Difference between the Two
Outsourcing software development to an offshore development team means hiring an outside IT company based in your or another country. The expert workforce of that IT Company will perform tasks to build, deploy, and manage the software on behalf of you. You can assign them tasks to complete on a priority basis and resolve any issues urgently. The best thing about this is the money being saved because cost cutting is the best motivation for an organization selecting this type of business model.
You can hire a team of specialists in a certain topic only e.g. Team of Web Developers, Team of Mobile App Developers. Or you can go for a whole team consisting of developers to QAs and project managers. Industries such as travel & transport, media, telecommunications, retail, and others can opt for such type of outsourcing model. This type of model will help companies to focus on their business aspect.
On the other hand, to carry out in-house development work, you need to hire expert developers, designers, project managers, and others. In addition to that, you also have to acquire machines, tools, resources, and build the infrastructure necessary to perform the said tasks and complete with ease.
Here, you have control over resources, manpower, and what methods to use to render quality outputs. You can utilize the full-time local developers on-site that benefits your business. Hiring an in-house team and acquiring resources requires a high initial investment which makes it not suitable for budget-conscious companies. Not only that, but there are many other disadvantages of in-house hiring along with benefits.
Pros and Cons of Outsourcing Development
First, let’s look at the pros of outsourcing software development projects to other companies.
As per Deloitte Global Outsourcing Survey 2020, almost 70% of the agencies have cost reduction as their primary objective for selecting the outsourcing model.
This is because developers in western countries like the US, UK, Canada, etc. charge $100 to $150/hour or more. Whereas, Asian countries like India and others charge around $20 to $40/hour or even less. Thus, when you outsource your project to an offshore development center like India you could save up to 50% cost spent on infrastructure, hiring expenses, and the hourly rate of developers.
Cost-effectiveness and cost-cutting are huge factors to take into account while comparing the in-house and outsource development. For a software development project, you may need to hire in-house designers, developers, QAs, and others separately. Instead, you can extend your team by opting for an offshore development center.
2. Flexibility of Hiring
When you outsource your project, you have the flexibility to hire a developer or a whole team for the short term or long-term. Before outsourcing, you have to select the hiring model that best suits your software development needs. There are three hiring models namely agile or hourly hiring, time & material, and fixed scope & fixed quote hiring.
If you don’t want any long-term commitment as in the case of in-house, you can choose an agile or hourly hiring model. Suppose you need to hire a developer with a specific skillset just for a month or two. Thus, hiring an in-house developer permanently won’t be a viable option. That’s when outsourcing is helpful. Offshore development center gives you the flexibility to hire a developer with any skillset you require on an hourly basis and later forget them when the work is complete or the contract ends.
3. Focus on Core Competency
A famous American management consultant, educator, and author – Peter Drucker – supports the outsourcing business model and quoted “Do what you do best and outsource the rest.” Outsourcing the project allows you to focus on your core business competency. Also, it will help you to elevate the productivity of your in-house team resulting in growth acceleration.
The outsourcing team you hire will be an extension of your in-house team and can reduce the burden to increase the overall work productivity. Thus, do what you do best in-house and outsource the rest of the work to elevate growth and productivity.
4. Risk Mitigation
Most people don’t pay attention to the risk involved and forget to mention it as one of the benefits of an outsourcing development project. Risk mitigation is significantly beneficial when hiring an offshore development team. Software development projects typically have schedule risks, budget risks, operational risks, technical risks, external risks, etc.
To mitigate such risks outsourcing is bound by the legal contract. This contract will include the legal terms as well as the scope of work, payment clause, NDA, data confidentiality, time clause, exit clause, etc. Outsourcing is not only hiring another company but instead collaborating and sharing the benefits and risks involved in software development.
1. Resource Control
When comparing the in-house vs. outsourcing, this particular point is always in the favor of the former due to the lack of control measures. You may lose the traction of the project due to the lack of understanding by the outsourcing team and this can get worse if the outsourcing team is based in another country.
You can avoid such issues by documenting the requirements, creating work milestones, etc. to keep track of the work that’s been done. While you can always guide the team if your offshore development center partner is a good listener and competitive like M-Connect Solutions.
2. Communication & Quality Control
Communication is one of the cons of outsourcing. It is easier to communicate with your in-house team than with the offshore development team. Due to the time zone difference, communication with the team becomes complicated. Thus, you should maintain a single point of communication to resolve all your issues.
Quality of work is another concern that you might have to deal with. And what’s the point of outsourcing if you are not getting the expected quality work. However, you can avoid such issues by hiring a reliable and gilt-edged offshore development center that will make the communication more streamlined and provide top-notch solutions as well.
Pros and Cons of In-house Development
Many entrepreneurs would want to hire an in-house team for the development but are not certain they should do it or not. So, let’s find out the pros of in-house development.
1. Resource Availability On-site
The in-house team will be available to connect immediately and makes communication more effective which also reduces any chance of misunderstanding. In addition to that, the changes needed in the software will be quickly executed as the in-house team works in the same office and time zone as you.
2. Cultural Fit
The in-house team of developers and designers you hire will share the same beliefs and culture of your country. This will help them fit in with your organization more efficiently and add value to their work. All of which will help in the growth of your team as well as the organization.
1. Significantly High Cost
In-house development is more costly than outsourcing development. This is because, in-house development includes the cost of infrastructure, employee salary, training costs, employee benefits, etc. Thus, if your company is a budget conscious, then you should not hire in-house team and instead go for outsourcing.
2. Lack of Talent
With the evolving needs of the IT industry, not every developer wants to or is passionate about upgrading their skill set. This results in the shortage of talented developers with the required skillset to hire for your in-house project. Thus, you might have to pay some extra bucks which adds more cost to hire a developer with specialized skills.
3. Low Employee Retention
Your project may be going through a crucial phase and suddenly one of your key developers leaves the company because another company had offered a better package. There is always another company that offers luring packages to best fit candidates than what you are offering. This is particularly true for most western and European companies where developers keep switching their jobs in the middle of the work.
There are immense benefits of working with the offshore development team which makes it worth a try. And if you are in luck, you may find a reliable offshore development partner who will help you to catapult your business towards success.
Hiring an in-house team may seem a more attractive option out of the two, but there are some issues with it and is not best-fit when you put stress on cutting cost. You may have to go through the recruitment process, picking the suitable & talented resource all of which takes time and effort from your side. This may distract you from focusing on your core business which can lead the project to lose its flavor.
However, you are always welcome to contact our team of experts if you seem confused about taking a decision when comparing in-house vs. outsource development.
About Hemant Parmar
Hemant Parmar is an eCommerce expert and a keen Magento consultant who specializes in meeting the needs of businesses in the e-commerce space. Years in the eCommerce market make him a perfect choice for sharing his expertise on eCommerce and Magento 2 development. He believes that customers need to be met no matter how challenging it might be.Read More