Let’s say you have a project to run – and you want to either update your legacy system, develop a totally new solution or add a new feature to existing software. Do you handle this internally or hire external experts?
There are at least four different options that you can consider here:
- In-house software development – this means engaging your internal development team to do the job ( it may require hiring some new specialists)
- Offshoring – this is when you hire an external company to handle a project for you; they are often located overseas, where the costs of labour is lower.
- Nearshoring – this refers to hiring a software development company located in a different (yet, relatively close) country, both geographically and culturally.
- Reshoring – this is when you bring the parts of your business that were offshored back to your home country.
If you are wondering which option is the best one for you, then there are a few basic factors that you need to compare in order to get a full view of the situation.
Basic factors to consider in your comparison
1. Costs
- Fully loaded costs of your in-house employees vs. costs of hiring an external team
Pensions, benefits, equipment, office space, taxes – all of these expenses add up when you’re working out the full cost of your in-house employees. If you want to compare this to the costs of hiring an external team take all of this into account. - Costs of onboarding in-house employees and building a relationship with an outsourcing company
Each new team member that you hire will have to be onboarded first, which can take up to a few months, and any external team will also need to be introduced to the project. This requires some time and effort from both sides so that you can get to know each other, establish certain processes and develop a trust-based relationship.
2. Location
- Time zones
This, of course, isn’t an issue with in-house development (unless you hire someone who works remotely for you from a different continent). Even with nearshoring and reshoring, this isn’t a problem. But when you go with offshoring, you have to learn how to deal with the various challenges in communication that are associated with working in different time zones. - Travel distance
This is yet another factor that isn’t an issue with in-house development. Offshoring, on the other hand, often requires significant lengths of travel whenever you want to meet with your partners, and business trips can take at least a few days. With nearshoring, since your partner is located much closer to you physically, you wouldn’t even need to stay overnight on any business trips to meet with them. It’s the same with reshoring because with this option, you work with a partner that operates within the borders of your own country. Of course, in our pandemic reality we have learned to handle almost everything online, so travelling is not actually that important right now, but once things are back to normal – this will matter once again. - Corporate culture
Whenever you hire new team members, you have to make sure that they share the same set of values that your organisation believes in, or at least observe a willingness in them to adjust. With nearshoring, you can find a company that matches your culture with relative ease, since these companies already operate within the same cultural circle. And reshoring makes it even easier for you to find common ground and communicate effectively with your partners, because you are more likely to share similar values, as well as the same native language, which always make the collaboration process go much more smoothly. With offshoring, on the other hand, your set of beliefs, standards of work and processes may differ significantly from the values held by your potential partner. These tiny differences may become a source of serious misunderstandings that could potentially undermine your project.
3. Soft factors
- Productivity
If your resources allow your in-house team to focus exclusively on the new project – that’s great. But if they’re simultaneously engaged in other ongoing processes, their efficiency may be significantly reduced. This is often the main reason behind why companies choose to opt for offshoring, nearshoring or reshoring – an external team is always focused on working on a single project at a time, so that everything can progress faster and with closer attention to detail. - Competency gaps
In-house development may sometimes struggle with competency gaps. You can deal with this by hiring new experts, but it takes a lot of time to find the right people. By outsourcing, you can easily hire an entire team of specialists or chosen experts to fill a particular gap. This option is highly appreciated in nearshoring because you get to work with highly-skilled people (in technologies that you need) along with a thorough understanding of business. It’s the same with reshoring; however, this option is usually a bit more expensive than nearshoring because of the costs of labour - Communication skills
You can observe the way someone communicates during the recruitment or procurement process. And the further away from your office these candidates are located, the more careful you have to be while selecting the best fit for you. Make sure the people you engage into your project (no matter if in-house or outsourced) are the ones you can communicate with well.
4. The nature of the project
- Big projects — run by large corporations, looking to scale up
In this case, offshoring, nearshoring and reshoring might be the best options for you. This is because they allow you to rest assured that your project is being run holistically by a company that can scale up and down whenever needed and swiftly engage different types of specialists, depending on your needs and expectations. - Big, medium or small projects — run by companies that emphasize productivity and that are looking to deliver critical projects
Nearshoring and reshoring might be the best choice here. They will focus exclusively on your case, be available during the same hours as you. - Small project, not critical
For something like this, in-house development might be the best option, but only if you have the right set of competencies within your company. If not, consider engaging some experts who work with particular technologies, or who possess the specific skills that you need.
Wrap-up
There are a number of different factors to take into consideration while comparing in-house, offshore, nearshore and reshore software development – some of them are directly related to development costs, while others may reveal hidden costs in the future and this is something that you need to be aware of. It’s crucial to choose the best option for your project (and your working style!). Also, bear in mind that the recent pandemic has changed the way that we used to function, and every company should have a diversified source of experts to choose from, in case of emergencies like this.