Outsourcing vs. In-House Development in 2024: A Comprehensive Analysis

Since you have landed here, we can assume that your business’ digital needs have been skyrocketing and you are looking into expanding your tech team. We know that it is not the easiest of endeavors and choosing the right approach to addressing your development needs can be daunting. The main decision in starting your journey to building new software tools for your company is probably the selection between outsourcing and in-house software development. 

As you are skimming through our article with skepticism, rest assured that this is not yet another praise song dedicated to software development outsourcing. We will be reviewing the pros and cons of software outsourcing and in-house development objectively, while spicing the whole thing up with the latest statistics. 

To help you further, we will provide you with a quick checklist that will help you have an initial idea about your future choice between the two, based on the specifics of your project and goals. 

What is Software Outsourcing? 

Software development outsourcing refers to the type of collaboration where an organization hires an external software development company to handle its software projects, either partially or completely. 

Software Development Outsourcing Statistics in 2024

Numbers don’t lie so let’s get you started with some quick statistics about software outsourcing in 2024 and beyond. 

   - The IT outsourcing revenue is expected to reach $512.60 billion in 2024. 

   - With an annual growth rate of 11.07%, the market volume is projected to surpass $777.70 billion by 2028. 

   - IT services comprise around 72% of all global outsourcing contract values. 

   - 83% of tech leaders are considering outsourcing their cybersecurity needs. 

   - 60% of companies choose outsourcing for mobile app development. 

   - 72% of the organizations in the financial sector prefer outsourcing their mobile app development needs. The number drops to 31% for healthcare. 

   - In a Deloitte Global Outsourcing Survey, when asked about the main benefits of outsourcing, around 65% of the respondents said that it helped them focus on their core business functions. 63% mentioned cutbacks in spending as a key benefit of outsourcing. 

The Advantages of Software Development Outsourcing

There must be a reason or two why the numbers above are on the rise. We have made a list of the main advantages of software outsourcing to help you understand why it’s become such a sought-after tool for businesses worldwide. 

1. Cost Effectiveness 

Things are a tad chaotic in our times and when making future plans, businesses should definitely be conscious of their current and upcoming spendings. Saving in places where it is possible should be a priority, especially if you are on a tight budget. Outsourcing can help with this. As you can see from the statistics above, cost reduction is the 2nd key factor that drives businesses to outsource their software development needs. 

Outsourcing allows you to onboard specialists at reasonable pricing, while essentially cutting the hiring costs (employee benefits, insurance, training, leaves, etc.). As a result, you only pay the hourly rate of developers (and other specialists as per your request) based on their seniority level without the need to cover the employee benefits. 

Besides, when the job is done, you don’t have to keep paying them salaries, which would be the case with an in-house development team. 

2. Short-Term Commitments

Software outsourcing allows you to scale your remote team up and down based on your current business needs. There is no obligation to commit to your new team long-term after your project has been developed and delivered. You work with your offshore partner only when you need them. You don’t have to keep paying them until a new software need appears on the horizon. 

Your outsourcing team becomes an extension of your company that can be there whenever you need them to tackle your software problems. You can even ask for ongoing maintenance and support services to cover your project needs in the post-release period. 

3. Focus on the Core Competencies 

Since around 65% of businesses consider this to be the main factor for choosing software outsourcing over in-house development, who are we not to agree? 

Having an outsourcing company handle your software projects allows you and your team to focus on the core functions of your business. You stop worrying about all the things related to the development of your project, from task management and delivery to having to check on the progress of your solution regularly and fussing over each new feature and functionality, bug fixes or testing processes. All of this is handled by your outsourcing partner. 

This is not to say that handing your project development to an offshore company means you completely detach yourself from the whole process. Absolutely not. You will still have regular meetings with them to ensure that everything aligns with your business goals and expectations. 

In other words, you work as business partners and for that partnership to be a success you should trust them with their job and avoid micromanagement.

4. Flexibility with Decreased Organizational Complexity

By decreasing the number of resources directed to your software development needs, you also reduce the organizational complexity releasing your business from yet another division, project, or a separate team. Outsourcing software can be a huge relief for the size of your organizational structure, especially if your business is large-scale. This will add more flexibility when it comes to the distribution and management of the rest of your teams that are handling core business processes.

5. Access to a Large Talent Pool

Hiring in-house can turn into a complex process with highly limited options that may vary depending on your location. On the other hand, outsourcing gives you access to top talent from anywhere in the world. Choosing an outsourcing partner you trust will free you from having to find specialists with the right skills locally, as well as from having to provide them with regular training or waiting for them to upskill and gain enough experience for your project. Not to mention the additional time required to fix the mistakes that your in-house team might make because of the lack of experience. 

Your outsourcing partner will provide you with specialists who have the right skills and expertise to handle your project and deliver it within the set deadlines. Additionally, they can easily scale up or down depending on the progress of your project. 

6. Reduced Risks 

A well-versed software vendor knows the ins and outs of software development and can even help you identify the potential risks in your project, be it technology- or security-wise. In the majority of cases software partners know better which technology should be used for the development of a given product since they have more experience in the matter and have probably built similar software tools for businesses from various industries. 

Moreover, they can help your company facilitate an agile response to change. Let’s say you have a project that has been developed on a technology that’s already outdated and doesn’t comply with the demands of the market, slowing down your business operations and complicating your team’s tasks in places where things could be done in a blink of an eye. If this is the case with your software, you can rest assured that an experienced software development company can handle it for you by modernizing and upgrading your current products according to the latest tech standards. 

And last but not least, you can ask your software outsourcing team to provide you with ongoing post-release support and maintenance. This way, they will be able to quickly solve any issues or bugs that are discovered after the product’s launch. 

7. No More Capacity Issues 

Your in-house team members already have a lot on their plate, you can’t overwhelm them with a software development project, especially if it doesn’t fall under the core functions of your business. 

If you already have an in-house tech team which you think can handle your new software project, you should consider their current and upcoming workload first. Overwhelming them with new tasks can lead to errors and delays, and even to burnout. 

An outsourcing company can be the golden middle in a situation where you don’t want to hire new in-house employees and don’t want to overload your existing team. It will provide you with additional manpower to develop your project without compromising quality or the time to market. 

8. A Reliable Business Partnership

Another key aspect of outsourcing is the way you treat your software vendor. It’s important to understand that they are not a mere software provider, but rather a business partner. Your outsourcing company should have the same outlook on the matter - your success is their success. 

Besides, having an outsourcing partner is also beneficial from the point of view of digital geopolitics. Collaborating with a reliable and trustworthy business partner on the other side of the world might become a safe haven both for you and your business in our turbulent times. 

Outsourcing Disadvantages

There are not many downsides to outsourcing, especially now that it has already undergone lots of changes and improvements in its approaches to software development as well as to business partnerships in general. However, outsourcing is not for everyone. Not every business actually needs to outsource its software projects.

Let’s have a look at the main drawbacks of outsourcing software development to help you better understand where your software needs should lead you: 

1. Miscommunication

It’s much easier to communicate with an in-house team than an outsourcing company that is in a completely different time zone. This can cause delays in the project completion deadlines. For example, if your software team happens to need your approval to execute a given task, they may have to wait until a convenient time for both of you. 

Other than the time zone differences, you might also find it hard to adapt to cultural and language differences. If your partner is from a country whose culture is completely unfamiliar and foreign to you, there is a possibility you might encounter misunderstandings. To avoid this problem, you can always choose a partner who resides in a country with a culture similar to yours. 

Though, it’s worth mentioning that a company from a completely different culture can actually be helpful to you in ways you do not expect. They can give you a fresh outlook on how things are done on their side of the world, helping you generate new ideas and approaches for either your software project or your business in general. Nonetheless, if you are not open to such a possibility, we highly recommend against it. Experiments in business are good only when they are needed. 

As for the language differences, they can become an actual problem. If you and your outsourcing team don’t speak a language you both understand, it’s better to take a step back from such a partnership. Of course, you can always hire a translator but a lot will get lost in translation, not to mention that it will be a waste of money. 

In any case, if an English-speaking team is what you are looking for, you will hardly have a problem finding one. Most software development companies around the world provide teams who can speak English fluently since that’s the language of IT these days. Some may even offer to communicate with you in German or French if you don’t want to communicate in English. 

2. Less Control Over the Project

A widely reported concern about software outsourcing is the lack of control over the project. If your offshore team fails to understand your project properly, you may end up losing control over it even though you provided them with all the needed information. 

To avoid this, we recommend that you ensure that all your project requirements are well documented with clearly set milestones and a project development charter. This will help you better track the development process. 

However, the key to not losing control over your project is choosing a reliable software partner who will listen to your needs carefully and provide you with a competitive team willing to dig deeper in your software project to understand your goals and expectations. 

In-House Pros

In-house software development comes with its pros and cons as well. Let’s start with its advantages and see if they are more important for the success of your project than those of outsourcing: 

1. Cultural fit

It goes without saying that an in-house team will understand your company’s culture better than a team that’s miles away from you. Being a better cultural fit may result in higher motivation to complete the key project deliverables. Not to mention that there will be no cultural or language differences. 

However, cultural fit is not a key factor in the success of a project. It’s a bonus point. You need to set your priorities carefully and list the benefits your project will get from in-house as compared to outsourcing. 

2. Face-to-face Communication and Availability

An in-house team is at your disposal anytime. When you have something to check or tell your developers, they are just a few steps away. Besides, changes, bug fixes, and updates are also made faster with easily facilitated discussions on tech details and overall project progress. 

This way you also get more control over the project and are better involved in the whole process. Thus, an in house-team can account for such benefits as: 

   - Work transparency

   - Improved communication

   - Same time zone

   - Quick feedback

In-House Cons

In-house development comes with its downsides though. As much as it gives you full control over your project and team, it also takes away some of the benefits of outsourcing which, in many cases, could be more crucial for a successful software project development. Let’s have a look at the cons of in-house development. 

1. Costly 

In-house development can turn out to be quite costly. Think of all the expenses involved in hiring an in-house team:

   - Employee training 

   - Taxes 

   - Insurance 

   - Employee benefits 

   - Rent 

   - Hardware 

   - Software licenses 

   - Equipment 

   - Furniture 

   - Office supplies 

   - Non-billable hours (organization, meetings, training, business trips, team integration events, team upskilling costs)

If you decide to cover all these expenses, you really need to have some grave reasons to back up your choice.

2. Shortage of Top Talent

Hiring in-house means you will have to limit your options and choose from the local talent pool only. As of 2021, there was a shortage of 40 million qualified developers and engineers worldwide. This number is expected to reach 85.2 million by 2030. At such rates, hiring locally you may risk missing out on some great specialists with the right skills for your project. 

However, if in-house development is the right choice for your project, you can always provide training to your team to help them upskill. 

3. Low Employee Retention Rates

With such high numbers of tech talent shortage, it’s no wonder that retaining top specialists at your company is going to be more and more difficult. Larger companies willing to pay more for qualified software engineers will headhunt your staff unless you are able to give them a raise. 

According to the 2021 report of the Bureau of Labor Statistics, the turnover rate for software engineers is 57.3%, 25% of which is voluntary turnover. This makes the technology industry the winner in turnover rates. 

4. Recruiting Time 

The process of hiring a new developer, let alone a whole team of tech specialists can be quite long and expensive (interview expenses, training, onboarding, etc.). On average, you need around 42 days to fill a position in the IT industry. Not to mention the period of notice which obligates developers to leave their previous companies from 1 to 3 months after the acceptance of a new offer. This will delay the start of your software project development. Do you think your business can afford to wait this long?  

5. Less Flexibility When Scaling

It’s harder to scale up and down with an in-house team than with an offshore team. You cannot fire your team members when they are not needed anymore. Firing people carelessly will harm your reputation, retaining them will eat out your budget. That's the cost of in-house development. 

Outsourcing vs. In-House: The Security Battle

The importance of security cannot be stressed enough. Each and every employee at your company and in your outsourcing partner’s team should be security-literate. That way you will ensure the safety of customer data and other sensitive company information. Of course, implementing the right security measures according to the international standards should be a given. 

So, which comes with better security: outsourcing or in-house development? 

Some may argue that when it comes to security, in-house development is the winner since no data gets outside the walls of your company. However, the reality is slightly different. 

When you hire in-house employees, you sign agreements with them regarding security standards and the sharing of sensitive data. In case of a contract breach, high financial penalties apply. 

The same way, you sign security agreements with an outsourcing partner too. In this case, the agreement is more detailed and comes with higher penalties if a breach occurs. 

What you should know is that both in-house hires and outsourcing companies can lie about their experience, knowledge, and skills. You just need to do thorough research and a background check of your partner or employee. 

We cannot say that outsourcing is more secure than in-house development, or vice versa because there are risks involved in both cases. Having strict security measures and choosing a trustworthy and reliable partner/employee will guarantee the safety of your data. 

How to Make the Right Choice?

Both approaches take time to plan, research, and implement. Each comes with several different stages starting from planning to execution. The following infographic displays the journey you need to take in order to successfully start your software development process using either of these approaches. 

In the end, it all comes down to your preferences, project specifics, goals, budget, and location. The checklist below can serve as a guiding tool to help you determine the approach that best fits your business and software project. 

Choose an outsourcing partner if: 

   - You need to kick off your project development as soon as possible and hope for a faster time to market. 

   - You need a team with extensive experience and expertise in software development who can also provide you with business analysts to evaluate your business needs and make better software development decisions. 

   - Software development is not the core function of your business. 

   - Your project needs are going to change often and require scaling up or down. 

   - There is a lack of talent in your area. 

   - You are on a tight budget. 

   - Face-to-face meetings are not mandatory for you. 

   - You would like to have a new and reliable business partner. 

Hire an in-house team if: 

   - Company culture integration and close ties between team members are crucial for you.

   - Your project is going to be stable with minimum changes in demands over a long period of time. 

   - Launching your product fast is not a priority. 

   - Software development is a core function of your business.

   - You have no budget concerns. 

   - There is no shortage of talent where you are. 

   - You are confident in your ability to retain your in-house employees. 

Parting Thoughts

Whether you choose in-house development or outsourcing, in either case, your decision should be business-driven. If you are in doubt, we recommend that you consult professionals. Based on your business niche and your project specifics, they will be able to guide you in the right direction. 

At VOLO, we know the value of strong and lasting partnerships with our clients. We implement the best practices and constantly work on improving our approach to software product development processes thus reinforcing our collaborations with international partners of different backgrounds and industries. Our strategies are based on agile principles thanks to which our team is able to make changes based on our partner-client’s needs and demands. 

We will help you understand the right approach and technologies needed for your project by thoroughly evaluating your project as well as your business goals. We like to call a spade a spade. If we see that your project is better fit for in-house development, we will let you know, thus saving us all time and resources. Honesty is how trust is gained and we value both. This is the secret to the longevity of our multiple partnerships. 

More helpful resources: 
- The Ultimate Guide to Software Development Outsourcing
- Exploring Armenia's IT Landscape: A Compelling Case for Outsourcing Software Development
- Outsourcing vs. In-House Software Development for Companies in the Commodities Industry
- Our Take on Software Development Outsourcing: An Interview with Armen Kocharyan
- The Team You Should Expect from Your Software Outsourcing Partner