Outsourcing
Table of Contents
The debate between in-house vs. outsourcing is an ongoing struggle, with compelling arguments supporting both sides. While in-house development is considered more secure and manageable, this is not always true for businesses with limited budgets or needing rare expertise.
Outsourcing still feels controversial because of many myths and misconceptions. However, the software development outsourcing market is steadily growing, with an expected CAGR of 11.5% from 2023 to 2028.
Today, we’ll compare in-house development vs outsourcing and determine why and when to choose each option.
While outsourcing deals with external professionals for the project or its parts like quality assurance or DevOps, in-house development implies managing a team within your own company.
Choosing between outsourcing vs in-house depends on many factors and the advantages and disadvantages of each.
An in-house development team can be a valuable asset to your business. Let’s examine how it helps build future-proof software.
Hiring people in-house means you gain specialists from the same cultural background and corporate climate. You directly influence the recruiting and hiring process and can choose team members who share your company values. In the comparison of in-house software development vs outsourcing, in-house teams hold the advantage.
An in-house team is part of your company, meaning you have direct control of the project and the team’s daily activities. This enables transparent quality control and helps avoid costly mistakes.
On-site availability means direct communication. Misunderstandings are less likely to occur between team members who work in one office. There will never be a situation where you and your team understand requirements differently.
By choosing in-house software development, you invest in people’s training and professional education, creating a highly skilled team of professionals whose expertise will perfectly suit your business needs and benefit you in the long run.
While in-house vs. outsourcing may seem like a straightforward choice, it's important to consider the other side of the coin.
In-house teams hold up costs connected with high local hourly rates and employee benefits. Additionally, you need to build the whole infrastructure that encompasses hardware purchase, software licensing, and additional expenses on hiring and project management to keep everything running smoothly.
Global Software Outsourcing Rates Comparison. Source
If you don't already have an internal team and want to set up an in-house development project, that can take several months to launch. The existing team, however, may lack key qualifications and domain knowledge for the future project, thus requiring time for training.
If a key member of your team leaves, it puts the whole project in jeopardy, as it will take time to find a replacement. That might result in increased costs and project delays. When comparing in-house vs outsourcing teams, remember that the latter may experience the same issues. In that case, the contractor would be responsible for substituting professionals without sacrificing quality.
Your in-house team may lack the necessary talent, and narrow-expertise professionals can be hard to find and hire on the local market. Another scenario is that the team has no relevant experience that allows it to successfully complete a project.
Entrusting your software development project to a third-party service provider can benefit you in various ways. Let's look at the other perspective in the in-house vs outsourcing software development decision.
The most common reason businesses seek outsourcing is reasonable pricing without sacrificing quality. Outsourcing helps significantly cut costs compared to in-house teams. It removes expenses on infrastructure, hiring and training people, hardware, workspace, benefits, and bonuses, making resource allocation more effective.
Outsourcing allows you to delegate development tasks to your service provider and focus on core business tasks and goals. The outsourcing partner shares your risks associated with the development process and can independently manage the project.
If you have a short-term project, outsourcing will be more efficient than hiring the whole internal team. Setting up the whole infrastructure for a two-month project will cost you a dollar. With outsourcing, there are no such problems.
Outsourcing enables temporary team extensions when the workload is high and smooth team reduction when the scope of work shortens. There is no long-term commitment to hiring permanent staff. Here, in the comparison between in-house development and outsourcing, outsourcing wins in terms of easy team size adjustments.
In many cases, local markets cannot fulfill the business need for professionals with rare domain expertise, specific skills, or certifications. Outsourcing offers you a large pool of specialists — try looking for a perfect match in Eastern Europe, Latin America, or Southeast Asia!
With outsourcing, you don’t spend time on a long hiring process or team training and onboarding. Service providers only take 2-3 weeks to assemble and set up the team, and the project starts fast. Due to its fast launch and outstanding efficiency, an outsourced team can provide faster time to market.
In the in-house vs. outsourcing debate, the latter offers seasoned professionals who have most likely worked together before. The coordinated team provides a smooth workflow and efficient development. Furthermore, outsourced teams have more diverse expertise and outside-the-box thinking because of the many projects they have handled before.
The in-house vs outsourcing comparison becomes intense! Numerous benefits don't come without some downsides, and that is equally true for software outsourcing.
Business owners' major concern when considering outsourcing is security and sensitive data handling. There is no question why: in 2024, the average cost of a data breach reached $4.88 million worldwide. Sharing your proprietary code, systems access, and data with third-party vendors seems risky.
Luckily, there are ways to manage risks and careful data handling. What you can do to stay safe:
Tip: When choosing an outsourcing partner, conduct research on independent review platforms like Clutch and GoodFirms to learn about security practices of the service providers and the measures they take to protect data.
The in-house software development vs outsourcing comparison highlights that the distance between the client and its contractor may lead to less visibility and communication. Language proficiency is another concern: as English is probably your team's second language, there are concerns about the correct, clear and consistent understanding of tasks and requirements.
How do you handle such issues? First, inquire about your developer's English proficiency in advance. You may conduct an interview and discuss your project to get an idea about how they communicate or ask for some proof of English knowledge, like certificates or courses completed.
Second, hire developers from countries with a high English proficiency index, like Poland, to increase your chances of smooth communication.
From the project management standpoint, schedule daily or weekly calls to stay informed about the development progress. Give your team timely feedback on completed tasks and use specialized tools for time tracking.
A common belief is that outsourcing companies are solely focused on their business and lack commitment to their clients' objectives. They are seen as merely doing their job without a personal investment.
However, not all outsourcing companies are the same. With existing choices between outsourcing vs in-house development, being a successful outsourcing company in 2025 requires a lot more: a partnership approach, commitment to innovation, and careful project treatment.
At NEKLO, we prioritize the client's success. Our team suggests improvements that help businesses cut development and product support costs. Recently, we helped our client reduce infrastructure expenses by 80% by optimizing the number of active resources and improving architecture.
While project cost estimates cannot be 100% accurate and there are always some budget fluctuations along the way, facing unexpected extra costs is disappointing. The lack of transparency regarding costs often results in frustration and mutual discontent. Comparing in-house development vs outsourcing, you have fewer risks with an in-house team.
How to avoid hidden costs in outsourcing? If you are not a fixed-price contract supporter, there are several tips for avoiding hidden costs with other pricing models.
NEKLO is always transparent with its clients about project costs. As a trusted partner, we don't conceal or sugarcoat information on the project.
You must carefully consider the pros and cons of in-house vs outsourcing and evaluate your future project from the perspective of budget, availability of local expertise, project deadlines, and the level of flexibility you need.
While software development outsourcing has become a common practice for businesses worldwide, there are still many misconceptions about it. We've gathered the most popular ones and objectively examined each to provide clearer perspectives on in-house software development vs outsourcing.
This myth stems from the assumption that lower costs equate to lower quality. However, outsourcing does not inherently mean sacrificing quality. The key lies in choosing the right vendor. While not all outsourcing companies may be reliable, a carefully selected outsourcing partner can deliver high-quality results at a reasonable cost.
Imagine hiring an app development team from a different region. Communication is a key concern — misunderstandings in project requirements can drive costs up.
However, you can effectively manage this challenge. One strategy is to select a development team from regions known for strong language skills and technical expertise, such as Eastern Europe. Additionally, you can employ robust collaboration tools like Jira and Confluence that enhance communication, ensuring clarity and alignment on project requirements and feedback.
One of the most burning questions when selecting in-house vs. outsourcing is the distance. If you choose outsourcing, how will you deal with the 2-8 difference in working hours?
Timezone gaps can be managed effectively with proper planning. Inquire about the outsourcing company's flexibility in adjusting work hours. Many firms can align their schedules to ensure a 3-4 hour overlap with your team's office hours, allowing for daily meetings or messaging during this window, effectively bridging the gap.
Additionally, the timezone discrepancy can be beneficial, enabling a continuous workflow where you can review progress made overnight by your outsourced team.
The idea that outsourcing is only for simple tasks may stem from early outsourcing trends when businesses primarily offshored simple, repetitive tasks to save on labor costs. In reality, outsourcing can handle both simple and complex projects. Service providers often bring fresh solutions to complex problems, develop sophisticated custom software, and handle difficult tasks that require special skills and knowledge.
Clear expectations and communication ensure strong control over the project. Maintain it through reasonably frequent meetings and project management tools. Regular updates, meetings, and detailed reports can help you monitor progress and adjust as needed.
Let's explore how businesses of different sizes can benefit from in-house vs outsourcing.
Startups drive innovations, have global ambitions, and gain their project financial basis through investments. While there are some examples of startups that were able to set up a whole in-house development team, they usually launch as a bunch of enthusiasts with brilliant ideas, later evolving into something bigger.
Other scenarios are more common. One of these is keeping an in-house team for core tasks and outsourcing parts of the software development. Sometimes, startups wholly outsource the development process, leaving business development, marketing, and further ideation to internal teams.
For such companies, keeping only an in-house team can be too costly, as there is a limited budget and investments and no revenue yet. One in five startups fail in the first year, and the most common reason is running out of money. Outsourcing helps lower development costs, find the expertise needed, and launch products faster.
Small and medium enterprises (SMEs) are also big supporters of outsourcing. Their main drivers are access to talent and development cost reduction — that's how 57% of UK-based organizations responded.
Through outsourcing, SMEs also decrease their development risks, improve project management, gain better domain knowledge, and increase flexibility. An outsourced team enables faster time to market and quicker adaptation to changing market conditions.
In-house development is also a viable option for SMEs. The common misconception about domestic teams is that such development is too costly. While costs can be higher compared to outsourcing, the software projects can be designed to fit your budget and business size.
For SMEs, the application of outsourcing vs in-house mostly depends on the availability of resources and talent.
Enterprise development projects usually have complex requirements, compatibility issues, and require enhanced security measures and data protection.
In-house teams may be a good option for enterprises as they are solely focused on their projects, which can lead to more thoughtful and tailored solutions. Additionally, enterprise software development projects can take years to accomplish and require constant maintenance. So, keeping your in-house team for quick emergency response or support is a great option.
Outsourced teams also suit enterprise needs. Contrary to common belief, a long-term partnership with service providers is feasible and significantly decreases project costs while maintaining high quality.
In the last decade, many companies have chosen outsourcing as a cost-effective solution and became very successful.
Slack referred to nearshore outsourcing to develop its web and mobile apps, design, and branding. The choice fell on a Canadian outsourcing provider, who then helped Slack stand out from the competition through the distinctive look and feel of the messaging software.
Other business activities Slack outsourced to multiple providers include customer support, marketing, and growth hacking. The company used outsourced customer support service for about two years before forming its in-house team. The choice fell on a US-based remote service provider. With no marketing team back in 2013, Slack used multiple freelancers and marketing outsourcing agencies to spread the word and acquire new customers.
Now, their logo, web design, website, and mobile app are recognizable to millions of people, making the outsourcing story a big success. In 2024, Slack had 42 million active users from over a million businesses, making revenue exceeding $1.7 billion.
Overall, Slack managed to roll out the quality product faster and cost-effectively, avoiding spending time on in-house staff hiring and training. After the first success, with the help of outsourcing, the company scaled its operations quickly, focusing on its core competencies. This is a perfect example of a combined approach instead of choosing between outsource vs in-house development.
In 2003, video communication and online chatting were innovative ideas on the market. The creators of Skype, nevertheless, struggled with the technical challenges. They decided to use outsourcing development services, which allowed lower costs and required tech expertise. Skype founders hired an outsourcing company from Estonia to develop a reliable back-end for seamless functionality. The results were not long in coming. The platform's rapid development and expansion gained attention from top businesses, and the solution was acquired by eBay in 2005 and then purchased by Microsoft for $8.5 billion in 2011.
Why did the promising startup, faced with the choice between in-house vs outsourcing software development, opt for the latter, at least partially? Skype prioritized smooth user experience, scalability, and high performance but lacked specialized knowledge. Outsourcing was the option that allowed them to meet all their priorities, develop the backend without using many resources, and concentrate on core business.
Today, Skype is one of the most popular video conferencing business tools, with over 40 million users daily.
P.S. The Estonian developers who helped Skype at that stage were integrated as partners a few years later.
WhatsApp is an acknowledged messaging and voice-over IP service used by 2.5 billion users worldwide. But it all started way more demurely. In 2009, WhatsApp founders Jan Koum and Brian Acton faced the lack of in-house team professionals with certain skills and expertise for iOS-based app development, graphic design, and server infrastructure management. The founders decided to outsource these tasks, and that was the right decision.
Outsourcing helped WhatsApp save time, access required expertise, and reduce costs. As a startup, WhatsApp combined in-house and outsourced teams to reach the best results — an approach that helps reap outsourcing benefits yet keeps core activities internal. This experience wasn't forgotten, and today, WhatsApp continues to use outsourcing for tasks like localization, customer support, and server management.
The key factors when considering in-house development vs outsourcing arise from their benefits and limitations, which we've already covered. What should you evaluate before making a decision?
For over 15 years, NEKLO has provided development services catering to eCommerce, Healthcare, FinTech, and other industries. With development hubs in Eastern Europe, our teams have diverse expertise and are a great cultural match for American and Western European clients.
Services NEKLO provides:
Our clients value NEKLO’s dedication to the project and its total ownership, transparent communication, and ability to meet project deadlines. 85% of clients choose NEKLO for their next projects, and 95% of clients for whom we built MVP proceed to develop full-scale projects with us.
"Our commitment to transparency ensures that we immediately inform clients of any emerging additional costs throughout the duration of the project."
Alex Mokievets, NEKLO's COO
Have some questions left unaddressed? We collected less common yet important questions about in-house vs outsourcing software development here.
We would say even more — outsourcing can surpass your expectations! In the in-house vs. outsourcing dilemma, the selection process for your outsourcing partner and your in-house team members plays a major role. When chosen wisely, an outsourced team can become a powerful combination of skills and expertise tailored to your project.
The major outsourcing concerns for businesses are security and sensitive data handling, sudden team changes, less control, and unexpected, low-quality results. A careful selection process and establishing a strong legal framework, including NDAs and statements of work can mitigate these risks.
Setting up an in-house team ensures deep integration with the company's culture, as members are more likely to fully embrace its values, mission, and norms.
Outsourced development teams are usually quickly adapted to the client's vision and changing needs. They may have a fresher look at the established processes and procedures and provide new insights into solving problems. Modern communication tools and technologies connect clients with external teams.
When choosing an outsourcing company, check compatibility with values and work culture. You may choose service providers from regions culturally similar to Western countries or hold additional interviews with team members.
The bottom line in the in-house vs outsourcing software development comparison is that both options are good, but with some core differences.
Outsourcing is often a good choice when you have a limited budget but are not ready to compromise quality, when development tasks distract your employees from core business needs, or if you have a tight deadline.
An in-house team suits large companies with ambitious projects and no resource constraints. Choose it if you want to have complete control over the project and keep sensitive information on-site.
Thinking about outsourcing project development? Reach out to NEKLO today to experience our commitment to transparency and partnership firsthand!
US-based and operating globally, NEKLO spearheads digital transformation initiatives for businesses worldwide. We deliver software solutions complying with your market and legislation.
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