In-House vs Outsourcing Software Development

Anna Hmara
Anna Hmara
Senior Technical Writer

According to a Statista report, the worldwide IT outsourcing market is now valued at over $66.52 billion. At the same time, more than 78% of businesses admit that they are satisfied with the experience they gained working with outsourcing companies. This data tells us that most entrepreneurs and firm owners have a positive attitude towards hiring third-party contractors to carry out parts of their process. Simultaneously, in-house software development is still extremely popular. In this article, we are going to compare both ways of building applications and find out which one is more effective and reliable.

Table of contents

    Difference Between In-House and Outsourcing

    Let’s start by understanding in-house versus outsourcing concepts. To develop an application or website, you obviously need a team. In-house development is when all team members are employees of your company. This is good if you have a large internal staff and you can just distribute tasks to employees. But if you do not have enough employees or the proper human resources on staff, it will be necessary to add to your team by hiring new employees. This process is very time-consuming and puts extra responsibilities on the shoulders of management and support staff who will have to organize interviews, meet candidates, and conduct training. 

    Another, often more convenient alternative to execute the project is by signing a contract with a software development company. This company studies your desires and forms a team of its employees to meet the objectives of the project. This is what outsourcing means. Simply put, you delegate tasks to software development experts.

    The history of the outsourcing business began in the 1960s when professionals from Silicon Valley decided to create an offshore center in Mexico. Later in the mid-90s, General Electric opened an IT center in China in order to reduce development costs. From this moment, the outsourcing industry began to grow rapidly, and companies from India, China, Malaysia, Philippines, Ukraine, and Poland became leaders in this area. The development of this business has brought significant changes to its organization. We can classify its organization in the following ways:

    • Local software development outsourcing - This type takes place when you hire a team located in your country, you can even be in the same time zone. It is pretty convenient since it will be easy for you to communicate and you don't face a language barrier.

    • Nearshore software development outsourcing - This situation occurs when you hire an outsourcing company from a neighboring country. This option is more cost-effective than the first one.

    • Offshore software development outsourcing - This is the most affordable software development option. An offshore outsourcing company is one that is located on a different continent or physically far from you. For example, the countries of Asia. 

    In-House Software Development: Advantages & Disadvantages

    To develop a quality product, you need at least several team members. Namely, a senior software engineer, one or two programmers, a designer, a testing specialist, a project manager and a product manager (sometimes one specialist can combine these 2 roles). So, in order to organize an in-house team, you need time and effort. Dr. Andrew Chamberlain, the Chief Economist for Glassdoor, conducted a study in which he interviewed more than 350,000 IT professionals about their hiring experience. He concluded that the average time of hiring a software engineer is 41 days. It takes 28 days to hire a software developer and 14 days for QA. Thus, if you start selecting personnel for the whole team at the same time, you will need at least a month. The process of forming an internal team may take even longer if you experience delays. At the same time, in-house development has undoubted advantages and disadvantages.

    Pros of In-House Development

    Essential advantages of inner software building include:

    • Full control 

    The main benefit of such a team is that you have full control over the development process. You always know what all members are doing during working hours, and you can even be located in the same office.

    • You choose the team 

    You have a chance to create a team of only those professionals that you like. You can select the personnel that you believe is the best. However, this may require a lot of time. Depending on your personality, this may be very fair trade, as you can be completely confident in all members of the project.

    • Flexibility 

    An in-house team can quickly respond to changes. Suppose you urgently need to make a significant modification to the product. A team that is completely under your control will be able to make the necessary changes faster.

    • Cultural and mental compatibility 

    Professionals from your area are more likely to have the same values for life and philosophies as you. It will be easier to find a common language with such people.

    Cons of In-House Development

    Below is a list of challenges you can face:

    • High price 

    You will have to take care of the salary and benefits for all employees. The more members you have on a development team, the higher the cost will be to execute the project. An in-house team can cost 3 or even 4 times more than outsourcing.

    • Hire suitable professionals 

    You must select specialists with the right set of skills and knowledge. Finding a software developer is not enough. You also need to understand whether you want a project to be written in Python or Java, etc. Thus, the formation of an in-house team also requires you to have basic knowledge of technologies.

    • Much time to start the development process 

    As you have already seen, the development process will not start instantly. You will need to spend time building the appropriate team by advertising job postings and conducting interviews. Time is money. Moreover, the delayed start to the project gives odds to your competitors.

    • Staff dismissal

    This is considered a global problem of in-house development. You have spent resources and funds on the training and adaptation of each specialist. And then one or more decides to leave your company. You will then need to urgently replace them, forcing you to begin the selection process all over again. And as a result, part of the budget has been wasted.

    When considering in-house development vs outsourcing, it should also be noted that the first option can be a better solution when you are building a long-term project. Especially if after completing all its tasks, you plan to maintain and update it for an extended period of time. Respectively, you must have a solid budget in order to successfully cover all these expenses.

    Outsourcing Software Development: Advantages & Disadvantages

    When contracting a vendor, you can choose on what basis the team will work. Almost all companies offer both full-time and part-time development options. At the same time, this type of cooperation has a number of significant advantages, which are definitely worth consideration.

    Pros of Outsourcing Development

    We have compiled a list of most important benefits of contracting a third-party company:

    • Cost-effective 

    One of the main goals of the outsourcing business is to reduce costs without losing quality. In the USA, on average, a software developer receives $75-$100 per hour. If you want to hire a freelancer, you will pay $50-$75 per hour. Nearshore companies charge $40- $75 per hour. Using services of offshore companies you can pay $25-$50 for quality software development. This is typical for countries like Ukraine, Poland, China, and Singapore. You can find developers from China or India for $5-15 per hour, but the quality of their work can be very low.

    • Fast time-to-market 

    By executing a contract with an outsourcing company, you avoid all the problems associated with the selection and hiring of personnel. Such companies already have all the necessary specialists who meet the requirements of the project. Due to this, the team can start working on the project immediately after the signing of the contract.

    • Accept specialists with tech talents 

    You get access to an unlimited resource of seasoned pros around the world. There will be no need to spend money on the development of their talents. Besides, the competition among outsourcing companies is very high, so they take great care to ensure that their employees have in-depth knowledge and outstanding skills in software development. You just have to choose a team that meets your personal expectations. At the same time, reliable outsourcing companies provide licensed project managers as well. It is the link between you and the rest of the team. You set all the goals for the manager, and they, in turn, distribute tasks to developers, testers, etc. Additionally, the project manager provides detailed reports to you on the progress of the project.

    • Focus on priority tasks

    You can work on the most important tasks, leaving the rest to an outsourcing company. Google uses this model. They focus on the development of essential business products, while relying on outsourcing companies to deliver the less priority projects.

    • Scalability 

    Another obvious advantage is that you can expand or reduce the team at any time. For example, you need to complete a specific set of tasks as soon as possible. To do this, an outsourcing company simply adds more members to the team. In the morning you discussed with the manager that you need to expand the team, and by lunchtime, extra specialists are already working on your project. In this case, you do not need additional effort. You express all your wishes to the project manager, and they immediately go to work on its implementation.

    Cons of Outsourcing  Development

    Less attractive features of outsourcing companies include:

    • Different time zones

    The time difference can be a real challenge for you. Depending on the company, the difference may be 2-3 hours up to 10 hours or more. This significantly slows down communication. And if you want to make an urgent meeting in 10 minutes, in some cases, you will be deprived of this opportunity. However, many modern software products, such as Jira, Trello, and Skype, are available to facilitate communication on the project.

    • Lack of interest

    If this is your first project, most likely you are very enthusiastic. But not all outsourcing teams will share your interest. They will consider your project as just another task to be completed. This does not mean that their level of work will not meet your expectations, but the unequal level of enthusiasm may rub some first time users of this method the wrong way.

    At KeyUa, we care about quality development. The whole process of building software is transparent and understandable. Customer satisfaction is important to us, so we make every effort to exceed your expectations.

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    What About Outstaffing

    When deciding between the in-house or outsource processes, another option to consider is the hiring of specialists, known as outstaffing. Companies provide experienced employees to work under the customer’s supervision. If needed, they can even move to a client’s office. Salary costs and benefits are covered by the outstaffing company. Typically, this service is provided for several months to perform specific tasks. You can hire remote developers and manage them directly while they are still officially employed by the outstaffing company. It’s a kind of hybrid approach. In addition, outsourcing companies can also provide outstaffing services. This type of cooperation also has significant advantages and disadvantages.

    Pros of Outstaffing 

    Main benefits of this service are:

    • More control compared to outsourcing

    You directly manage the development team, setting goals for each employee. The development process also becomes more transparent.

    • Less cost 

    You hire a team with a lower hourly rate, and you do not need to pay for the work of the project manager since this becomes your responsibility. Outstaffing is currently the cheapest option among the three main ways of hiring a development team.

    • No employees 

    You do not hire employees. Simply put, you rent them. You do not need to worry about their salaries, social benefits, and office rent. The outstaffing company is responsible for all of this.

    Cons of Outstaffing

    This approach also has inconveniences, namely:

    • More effort spent on employee management 

    The whole team is under your full management. So you must spend time and effort to control their work. If you are a busy person, this can be a big obstacle.

    • Misunderstandings

    There may be cases of miscomprehension if the team members do not have good English. In outsourcing companies, such a problem is solved by the project manager, who is fluent in English. In the case of outstaffing, you will have to find a common language yourself.

    Outsource vs Outstaff vs In-house: Pros & Cons

    After we have analyzed the basic approaches to creating a development team, let's summarize everything with a pivot table.






    Affordable price, which largely depends on the chosen company

    The cheapest type of development

    The most expensive development option

    Selection & Hiring

    Very simple, all responsibility lies with the outsourcing company

    You can easily select employees from the company staff

    A complicated and lengthy process


    Provides real professionals in various fields

    Talented and well-prepared staff

    Mostly narrow specialists

    Implementation time

    Fast and flexible development

    Faster than in-house, but slower than outsource

    Slow process

    Development quality





    The process is supervised by the company’s project manager

    You lead the whole team

    You are solely responsible


    May be great, but it is easy to reduce

    May be great, but it is easy to reduce


    Response time

    Slight response delays

    Slight response delays




    There may be difficulties


    How to Choose a Reliable Outsourcing Company

    Despite the vital advantages of outsourcing companies, there is still some risk of signing a contract with an irresponsible contractor. In turn, this leads to significant risks, for example, the disclosure of confidential information. We have compiled a list of essential tips that will help you hire a reliable company.

    • Consider the Price 

    If you are offered development for $5-15 per hour, you can be sure it will not augur well. Good developers must have in-depth knowledge and a massive technology stack. They undoubtedly received an excellent education and continue to improve themselves in the field, building solid careers. Reliable specialists will not accept such a cheap evaluation for their services.

    • Investigate their portfolio

    Study the projects that the company has already delivered. All this can be obtained on their website. Verify the results by finding information about these projects in the news. Also, investigate whether the company has developed something similar to what you want them to implement.

    • Sign an NDA 

    You must sign a non-disclosure agreement with any contractor to protect your data and ideas. Note that the document must also contain a description of how and where the information will be stored or transmitted.

    • Define the communication model 

    An important part of any development process is communication between the team and the customer. You must understand all stages of the process. Before signing a contract, check with the company about how you will communicate with each other. Reliable vendors use a variety of software to demonstrate process transparency, namely Jura, Slack, etc. Additionally, you should also arrange daily or weekly calls with the team to discuss all the nuances and receive an update on the process.

    • Provide a clear project specification 

    The more accurately you describe the purposes and objectives of the project, the more likely the quality you receive will meet your expectations. All team members must understand the goals of all tasks just like you do.

    Why Hire Software Developers at KeyUA?

    In-house vs outstaffing vs outsourcing each have vital benefits and weaknesses. But the trend is that businesses prefer to delegate a lot of the tasks by hiring outsourcing companies. This gives excellent results in terms of saving money and effort without losing quality. Moreover, many outsourcing companies have solid experts in their ranks.

    By choosing the services of KeyUA, you can be confident in the quality of software development and protection of your data.

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    Xonadi says02/16/2021 9:56 AM

    Thank you for a helpful article. How often should I communicate with outsource developers working on my project? I don’t want to distract them but want to know how the development process is going.

    KeyUA says04/01/2021 1:25 PM

    Сommunication with developers should be convenient, first of all, for you as a customer. Fairly standard practice is weekly calls with the entire team, where you get a detailed update regarding the development progress. If the team has a project manager, you can ask them questions at any time during working hours. This specialist is the link between you and the team who ensures the transparency of the entire development process.

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