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Once upon a time there lived a successful businessman who decided to launch a new software product. But the only thing he had was a great idea. He was neither good at programming, web design, nor could he estimate all possible risks while bringing the product to the market. Therefore, he needed to gather a team of well-experienced, qualified, and passionate professionals to do all the aforementioned things for him. At that exact moment the successful businessman faced a choice: either to hire an in-house team or partner with an offshore software development company.

To help our hero to make the right decision, we conducted a small comparative analysis: in-house development vs outsourcing.

In-house development and outsourcing

To begin with, let’s define both approaches. In-house software development is building a product inside of the company using its internal resources. It requires the availability of tech professionals, business analysts, designers, enough infrastructure to support the development process and enough costs, time, and expertise to maintain and improve it regularly.

Outsourced software development stands for delegating software related tasks to the third party with competence in developing software products. The software contractor does all the necessary procedures to bring the product to the market as soon as possible, and maintains it afterward, while you can concentrate on your core business and save on costs, time and infrastructure.

Though, outsourcing now might sound much more attractive, none of the models can’t be called perfect and applicable for all cases. So, we’ll go deeper into these two models to find out in-house vs outsourcing pros and cons.

Hiring an outsourced team

A few years ago hiring an outsourced team was a huge risk. Since 2012 global outsourcing revenue was quite unstable. In 2014 it reached $104,6 billion and immediately reduced to $88,9 billion in 2015. The lowest index was shown in 2016 when the market size of the industry declined to $76,9 billion. In 2019 the global outsourcing market already raised to $92,5 billion and is predicted to grow during the next two years, reaching its peak in 2021. Though at first sight, the statistics may seem not playing in favor of outsourcing, if we take an overall look at the time gap from 2000 to 2020, we can see that the global revenue of the outsourcing industry has doubled.

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Currently, the two biggest outsourcing industries are BPO (business process outsourcing) and information technology. In 2019 IT contributed a much bigger proportion to the global revenue — $66,5 billion than BPO — $26 billion. So, we can confidently claim that IT is dominating in the global outsourcing industry, taking more than 60% of all outsourcing processes.

The leading investors in IT outsourcing

#1 Banking and finance

Big banks and investment enterprises outsource key financial application development and maintenance services as well as secondary applications for running a business such as marketing, HR, staff training apps, customer support, etc.

#2 Healthcare and medical industry

The implementation of IT technologies in the healthcare industry has been flourishing recently. They comprise a variety of different technologies to collect, analyze, and store the healthcare information, improving documentation processes and enabling hospitals to significantly cut their costs.

#3 Automotive sector

Automotive sector benefits from IT outsourcing in numerous ways: from vehicle infrastructure and safety measures to applications for massive data storage, tracking customer demand, shipping information, and fostering communication process with employees.

#4 Education industry

E-learning applications and websites convert learning materials into digital form and store them in one place, assess students’ progress, and provide interactive ways of learning such as games, guides, and so on.

#2 Media & entertainment and telecom

The industry covers a broad range: multimedia content on TV/online/in print, social media, communication-related businesses, television networks, and many, many more. With the advance of cloud solutions, artificial intelligence, data and analytics, and blockchain technology, each of the sub-industries is brought to the new level.

Pros and cons of outsourcing software development

As 78% of questioned companies feel positive about their outsourcing experience according to Deloitte’s survey, we’ll start with advantages outsourcing software development brings to the business. 59% of companies outsource to reduce their costs. Here are ways a company saves by outsourcing:

#1 Wages vary in different countries

According to the research held by Payscale the highest average software developer salary is in the US. The after-tax annual cost is around $71,269. If we compare this wages with those in other countries that have a high demand for programmers, we can see the following picture: the average annual salary in the UK is £31,006, in Netherlands €47,585, in Canada C$65,945, and in Ukraine $25,084. Therefore, it makes a big sense for companies to opt for cheaper wage-rates for labor-intensive activities in other countries.

#2 Social benefits

In most countries the law requires providing health and disability insurance for employees. Add to this expenses gratuity benefits, vacations, and holidays payment, at least one corporate party a year, some presents to keep your workers motivated, and you will come up with a number that compiles not a small part from the yearly salary.

#3 Recruitment process

Apart from being time-consuming, the process of finding and hiring a new employee is not cheap. In UAE the recruitment of a full-time worker approximately costs $4,100 per employee. Whereas, for hiring outsourced developers, you just post a job ad or contact a software company directly, no interviews, and no training.

#4 Office and equipment expenses

Renting an office space is usually not inexpensive pleasure. Furthermore, to provide the quality work of a tech team, powerful computers and test equipment are required.

To sum up, according to estimations, hiring an outsourced team, a company saves up to 60% in operational costs which undeniably is much more cost-effective than establishing an in-house system.

#5 Time efficiency

As soon as you have found a team of outsourced developers, they can immediately start working on your project. You don’t spend time on recruitment and training as you do in case of hiring an in-house team. A software vendor also takes care of market analysis and risk assessment procedures, saving your time and money. It gives you the ability to concentrate on the core processes of your business.

#6 Access to a large talent pool

The world is your oyster. Making a decision to hire outsourced developers, you are no longer limited by available candidates and software companies in your country and the rates they offer. With huge expertise in various technologies, outsourcing companies, can offer you the best candidates to compile an outsourced team that will meet your requirements to the fullest extent. Moreover, taking into account tough competitiveness in the outsourcing market, software vendors constantly improve their performance and strengthen the expertise of their developers. Only in Ukraine the tech talent pull is compiled of 192,000 developers with 1,600 IT companies currently operating.

Problems that might arise in the process of outsourcing

Time zone difference

Most frequently when you opt for hiring outsourced developers, your working hours don’t coincide. Therefore, sometimes when you have an urgent issue to solve, the development team and a manager might be unavailable. Though, there are some effective tips on how to overcome this difficulty.

Language and cultural barriers

National Outsourcing Association in the UK held a survey, in which 75% of respondents stated that they “would take more account of culture next time”.

This usually occurs when you outsource to some very distant countries where the mentality of people differs from Western a lot. It can be projected on the delivery procedure of a project: ignoring your vision, communication failure, ignoring deadlines, etc. A good idea is to learn about the culture of your second party’s country and check their English level beforehand.

Pros and cons of the in-house developed software

Advantages of the in-house software development team

High level of engagement and cultural fit

An in-house team stays in your office five days a week. Regular interaction with other team members positively influences on building corporate culture and gives an in-depth understanding of the product and the development process.

Always available

Working face-to-face is much easier to implement any changes, fix bugs, and share your vision of the product in the process of development. You don’t need to wait for the fixed meeting time with a vendor, as an in-house team is always at easy reach. Furthermore, you can constantly control the progress and make sure the development goes within the fixed deadlines.

Disadvantages of the in-house software development team

High cost

First of all, you spend on recruitment, supplying with working space, training, and top-notch equipment. Then some corporate benefits: presents, meals, parties, paid sick leaves, vacations and so on. The payment doesn’t depend on the scale of work done — you are always to pay the same salary. And even if the project finishes and the team of developers are on the bench waiting for the next one, you must pay if you want to retain them.

Lack of expertise

If you run an IT company and decide to bring to the market a completely innovative product, you may face with lack of required expertise of your in-house software development team. They might be great in something different but have a poor command of the technology needed for the exact product. The solution is either to hire new specialists or to enroll your current in-house software development team on some courses. Both options are costly and time-consuming.

Time losses

In-house developed software requires comprehensive market analysis and risk assessment, whereas in the outsourcing model it’s done for you. You also spend time on recruitment or training (if you already have an in-house software development team). Though the biggest risk you face is if the developers you invested time and money to train, decide to leave and you have to start the search from the beginning.

What did the successful businessman choose?

Summing up the issue of inhouse development vs outsourcing, he took into account that the development and maintenance of the application he wanted to be delivered is not a core competence of his company. Then, he calculated the amount of money, and the time he would spend on training his staff or finding new in-house software developers, added all extra costs, and came up with a big sum of money. Therefore, he decided that it would be smarter to outsource it. Having chosen inVerita as a vendor, apart from saving costs and time, he received an opportunity to improve the product’s performance gratefully to tech experts’ advice and make it competitive in the market. If you want to learn more about the outsourcing experience of our clients, feel free to check our case studies.

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