Over the last decade, given the increase in mobility and development of collaborative technologies, outsourcing has become a prevalent trend in the tech community. However, in 2021, under the weight of a global pandemic, does it still make sense for business owners to hire third-party vendors? In this post, we will take a look at what the landscape is like for building software in-house vs outsourcing discover why outsourcing is good for some projects but not others, and suggest alternatives for business owners to explore.
Why Do Business Owners Outsource?
Outsourcing is the practice of hiring a third-party vendor to complete project-related work. There are different types of contractors business owners can hire:
- Onshore vendors are local service providers.
- Nearshore contractors are based in neighboring countries (in the case of the US, Mexico or Argentina are nearshoring markets).
- Offshore outsourcing service providers are overseas companies that work on the main team’s project.
Why outsource? Regardless of the type of vendor business owners choose, the reasons behind a decision to outsource are similar for most, namely:
- Access to an affordable workforce. According to Deloitte, the main reason for teams to embrace outsourcing at the moment is cost reduction. Hiring contractors abroad helps company managers cut salary and operating expenses as they hope to survive the COVID-driven recession.
- Flexibility. Travel bans and mobility restrictions introduced business owners to new challenges, such as struggling to connect with and support global customer networks. To this end, teams are growing open-minded to outsourcing, hiring contractors to manage customer support, and offer real-time insight on the state of targeted markets.
- Speed to market. The COVID pandemic gave rise to new trends – online education, remote work, and others. Business managers who are eager to tap into these niches want to ride the wave of change – that puts an emphasis on rolling news builds out as fast as possible. Hiring in-house talent to speed up development is not the most convenient nor the fastest strategy – that’s where outsourcing has a part to play. Since onboarding a vendor requires on average about 7-14 days, hiring a contractor abroad is a powerful weapon for increasing speed to market.
Top Benefits of Outsourcing
In the last ten years, a growing number of Americans are harnessing the benefits of outsourcing – in the US alone, 300,000 jobs yearly are transferred abroad. What advantages are business owners after when they vote in favor of hiring third-party vendors? Here are the most impactful outsourcing benefits:
- On-demand talent. In the environment of recession and economic uncertainty, taking the risks associated with hiring an in-house team is a burden for many small-scale business owners. On the other hand, outsourcing offers a granular approach to talent selection, allowing managers to expand and scale teams down depending on budget constraints and the intensity of workflows.
- Access to established practices. Establishing corporate culture and project management conventions takes time for newly-founded teams. When bringing a product to the market, the speed of the launch is essential – that’s why a growing number of business owners take a shortcut and hire teams with established software development methodologies.
- Cost reduction. Hiring tech talent outside top talent hubs helps business owners save on engineer salaries. Compared to the median pay of an American or European developer, professionals from Latin America or Eastern Europe are times more affordable.
Limitations of Outsourcing
Despite all outsourcing advantages, it is by no means an ultimate approach to building tech projects. Before screening and negotiating vendors, business owners need to be aware of the challenges of outsourcing that come along with employing a third-party contractor:
- Lack of focus. Outsourcing contractors handle a high number of projects at once – business owners can’t expect a dedicated team to be fully committed to the product. As a result, there’s no way for managers to make sure vendors are not cutting corners and are doing their best.
- Security concerns. At all stages of collaboration, business owners share sensitive data with vendors – private information of app users, the codebase, practices, etc. If a contractor is not careful enough to protect the data, company managers are facing the risks of leaks or misuse. Recently, a Japanese messenger company “Line” became a victim of vendor negligence – the members of a Chinese outsourcing contractor accessed the database of LINE users 32 times. The discovery landed the messenger a ton of bad publicity and created the need for damage control.
- Hidden costs. Limited transparency is another concern for hiring outsourcing vendors. Business owners have little oversight over whether declared salary and maintenance costs match the actual expenses on the vendor’s behalf.
Alternatives to Outsourcing: Building an In-House Team
On the other hand, a lot of business owners swear by their in-house teams and do not consider outsourcing projects to third-party contractors.
Benefits of In-House Teams
- Operational agility. Unlike an outsourcing vendor, an in-house team pays undivided attention to the project and is committed to reacting to changes in real-time. As a result, in-house teams have the upper hand in addressing maintenance emergencies and can deliver a higher-quality user experience.
- Full commitment to the project. When running an in-house team, business owners have the freedom to expect dedication from professionals on board. As a result, company managers can build an environment where implementing best software development practices and thorough brainstorming are encouraged.
- Innovation ownership. Not having to share technology and practices with third-party vendors eliminates security concerns and protects the end-user. Furthermore, managing a team within the company mitigates the risk of losing data permanently in the process of vendor transition.
Limitations of In-House Teams
Control, transparency, and commitment are the hallmark benefits of in-house teams. However, building a local team comes with distinct challenges business owners need to work around. Let’s take a look at the tallest hurdles company managers need to jump through when establishing in-house departments.
- Shortage of competent workforce. In job-saturated markets like the US, finding an affordable yet skilled developer takes effort and time. Statistically, X% of American business owners claim they struggle when closing tech job openings.
- Need for upfront investments. Before a team can work on deliverables and generate revenue for the business, company managers have to take a leap of faith – invest in software, office, supply, and benefits for employees. In today’s economical environment, when more companies are bootstrapped for funding, investing in a team without having confidence in its efficiency is a tough call to make.
- Maintenance assignments risk distracting business owners from revenue-generating activities. Another common issue startup owners face is micromanaging getting in the way of improving the product, brainstorming new marketing and promotion strategies, and seeking growth opportunities. Instead of contributing to the project as visionaries and leaders, company managers spend countless hours answering repetitive questions and ensuring the team’s well-being. Such a focus on micromanagement slows down the business’ growth rate.
There’s a Third Option: Hire an Employee of Record
Is outsourcing good or bad? Both outsourcing and running an in-house team have benefits and limitations. It seems that assigning a project to a vendor is a powerful way to tap into the global workforce and cut operating costs – however, security concerns and lacking transparency can, at the end of the day, halt the project’s success.
Similarly, while an in-house team comes with management freedom and a higher level of dedication, business owners have no one to share the burden of team management, keep track of paperwork and maintenance with.
Does it mean that “you can’t both have the cake and eat it?” The answer is: not really. There’s a feasible alternative that combines the benefits of outsourcing and the strong suits of running an in-house team – hiring an employee of record. Find out more bout the benefits of this collaboration model to discover if it’s the right project management strategy for your business.
To establish a team that’s fully under your control in markets with skilled and affordable talent like Ukraine, Mexico, or Argentina, reach out to Bridge. Our team provides business owners an inside look into these markets and helps build skilled in-house teams abroad. For our clients, opening an HQ abroad is a powerful-cost cutting mechanism – calculate how much you can save by hiring tech developers abroad.
We are eager to build a team that skyrockets your project’s growth- let’s get in touch to discuss your talent needs!