What are the major differences between outsourcing software development and building a solution in-house?

These two models differ fundamentally in resource allocation, cost, project control, and other aspects. 

In-house development ensures direct oversight and alignment with company culture, while outsourcing offers flexibility and significant cost savings. 

We’ll tell you how.

We’ll also look at the pros and cons of in-house and outsourced software development and scenarios when you should opt for either model.

(We’ll also introduce you to the best software outsourcing partner — Distillery.)

Further Reading:
Explore 7 Massive Benefits of Custom Software Development and Tips to Do it Successfully.  
Explore Nearshore Software Development and how it can streamline your software development operations.  

This Article Contains:

What Is In-House Software Development?

In-house software development refers to the process where you use your internal staff to create, develop, maintain, and manage software applications or systems. 

Companies adopt this strategy when they have the resources to build a team. That’s because it involves significant investment in recruitment and training to ensure the team has the necessary skills and knowledge. This often results in a higher initial cost.

For instance, a tech firm may form an in-house team to build proprietary CRM software tailored to its unique requirements and objectives.

The result?

The company directly manages the in-house team, allowing for close collaboration, immediate oversight, and alignment with the company’s strategic goals and culture.

What Is Outsourcing Software Development?

Outsourcing software development involves hiring external service providers (individuals, teams, or companies) to develop, test, and maintain software applications instead of an internal team. 

This is particularly beneficial when you lack resources in-house and need additional skills. It lets you hire specialists from around the world, often at lower costs, without any recruitment headaches. 

For instance, a startup aiming to develop a new mobile app might not have the necessary skills in-house for iOS and Android app development. By outsourcing the software development project, they can hire a specialized firm in Argentina with experienced mobile developers to handle the app’s creation from start to finish. 

This ensures high-quality results without the need to expand their internal team.

There are three ways to outsource your software development needs:

  • Nearshore outsourcing: Hire a software development partner, like Distillery, in a nearby country like Mexico or Argentina. You’ll benefit from similar time zones, shorter travel times, and higher cost savings compared to onshoring in the US. 
  • Offshore outsourcing: Hire software development companies from distant countries like China to provide services at lower costs but with potential communication and cultural barriers.
  • Onshore outsourcing: Hire development companies within the same country. This model ensures the highest cultural and language alignment but usually at higher costs than nearshore and offshore outsourcing. 

Next, we’ll explore the differences between in-house and outsourcing development in detail. 

8 Key Differences Between In-House and Outsourced Software Development

Explore how each model differs in terms of project management, cost, talent access, and more.

1. Cost-Effectiveness

Choosing between in-house and outsourced software development can significantly impact the cost-effectiveness of your software development project.

  • In-house software development: This is often pricier than outsourcing due to the high initial investment required (office rent, hardware, and software, hiring expenses) and ongoing expenses (developer salaries and benefits). Additionally, maintaining a full-time in-house team demands consistent investment in training to stay updated with tech and market changes. 
  • Outsourced software development: Outsourced development eliminates the need for significant upfront investments in hiring, training, and infrastructure, such as office space. In fact, according to a Deloitte Global Outsourcing Survey (2022), 57% of executives state cost savings as the primary driver of opting for outsourcing. 

This is mainly due to the low living costs and labor rates in the outsourcing countries. 

2. Access to Global Talent and Expertise

Access to expert software development talent is crucial if you have to build innovative and high-quality solutions.

  • In-house software development: In-house software development is confined to a more limited, local talent pool. Besides, the local labor market may lack the diversity of specialized skills available globally. Retaining specialized local talent may also be tough due to intense local competition.
  • Outsourced software development: Outsourcing breaks geographical boundaries and lets you tap into specialized skills that are scarce locally. For example, you can develop software solutions in Mexico via outsourcing partners like Distillery. This lets you leverage talent with advanced skills in Mexico. (Mexican developers have 97% tech proficiency, according to the Coursera Global Skill Report (2023).)

3. Time to Recruit

The time to recruit directly impacts project timelines, productivity, and the ability to adapt to market or technological changes:

  • In-house software development: Hiring an in-house software developer can be resource-driven and lengthy, taking nearly 40 days to find one. This can slow down time-sensitive projects and divert resources from core business activities.
  • Outsourced software development: You can find a software developer through an outsourcing partner in just 1-4 weeks. They also take care of all recruitment processes, like interviews. This lets you save on administrative and recruitment costs, like job advertisements and assessment tests.

4. Control and Oversight Over Project Processes

The level of control over your development processes affects how well you can align with business goals, maintain quality, and manage risks efficiently.

  • In-house software development: An in-house project manager can directly monitor progress and make real-time adjustments if any issues arise. This is crucial for a software project with sensitive data, complex regulatory requirements, or strict adherence to internal processes. 

For instance, in a financial institution, a project manager may need strict adherence to financial compliance and data security standards, like the Payment Card Industry Data Security Standard. They may be more confident in scrutinizing this internally than having an outsourced team do it.

  • Outsourced software development: Outsourcing transfers some control to an external team, requiring trust and effective communication to align vision and execution.

    While you might lose minute day-to-day oversight, skilled partners bring their own project management expertise and processes, potentially introducing efficiencies you didn’t have internally.  

5. Time-to-Market

How quickly you deliver software products or updates impacts your competitiveness and ability to meet market demands.

  • In-house software development: Engaging an in-house team for software development often requires significant preparation time. This preparation may include ramping up, training staff, setting up the technical infrastructure, or even recruiting an additional team member. These preliminary steps can delay project timelines and market entry. You’re also constrained by the size of your team and their current workload.
  • Outsourced software development: Opting for outsourced software development can streamline the development process. This is because outsourcing partners bring pre-established systems, processes, and expertise to the table, which can significantly accelerate the project timeline. They also bring a wealth of experience from similar projects to avoid common pitfalls. 

You can further expedite processes by nearshoring to regions with similar time zones and work hours, like Mexico, which is just two hours behind the US. This allows for prompt decision-making and real-time collaboration. 

6. Flexibility and Scalability

Flexibility and scalability imply that your development team and software applications can adapt and expand to meet evolving project requirements and user growth. 

  • In-house software development: Scaling up an in-house team requires significant investment in recruiting, training, and infrastructure, making it a time-consuming and costly process. On the other hand, scaling down can lead to challenges in reallocating or reducing staff, impacting morale and potentially causing knowledge loss. 
  • Outsourced software development: Software development outsourcing allows companies to quickly adjust their team size and skill set in response to project demands without the overhead of hiring or training a new team member. And, you can tap into cutting-edge technologies on demand, ensuring your projects evolve swiftly and efficiently in line with market trends and business objectives.

7. Collaboration and Cultural Alignment

For seamless teamwork and alignment with the company’s goals, you need effective communication and collaboration with the development team.

  • In-house software development: There are usually no collaboration and cultural alignment barriers in an in-house setup other than any potential internal issues. Team members share the same organizational culture, work closely, and likely adhere to similar work schedules.
  • Outsourced software development: In offshore software development, different time zones, languages, and workplace norms can make collaboration in an outsourced team a bit tricky. 

Fortunately, nearshoring reduces these challenges by offering closer cultural and operational alignment. For example, a US company nearshoring to Argentina benefits from minimal time differences and an English-speaking workforce. 

8. Intellectual Property (IP) Ownership

In software development, securing intellectual property ownership is crucial for protecting innovations and maintaining exclusive rights to the developed technology: 

  • In-house software development: IP ownership remains within your company. This direct control gives you the exclusive right to distribute, license, and monetize the software, providing a competitive edge and potential revenue opportunities.
  • Outsourced software development: IP ownership needs to be clearly defined in contracts, like Non-Disclosure Agreements, to ensure your company retains rights to the technology. Plus, if your software needs industry-specific regulations like GDPR for data privacy, an NDA ensures your outsourcing company complies with such regulations.

Now, let’s summarize the benefits and challenges associated with the two models. 

Pros and Cons of In-House and Outsourced Software Development

The table below outlines the benefits and drawbacks of each model to help you choose an approach that best aligns with your organizational budget and project goals:

In-house software developmentBetter integration with existing software  development systems

Direct control and communication

Immediate support
Better protection of intellectual property  
High initial and ongoing costs of development

Difficulty finding and retaining exceptional talent

Limited flexibility and scalability
Slower time to market
Overhead expenses, like office rent as well as software and hardware licenses
Outsourced software developmentCost-effective

Access to specialized skills and advanced tech stacks

High scalability and flexibility

Proven software development processes

Faster time-to-market

Streamlined recruitment process

Focus on core business operations
Lack of complete control in offshore models

Communication issues usually in offshore setups

Security concerns, like data breaches

Hidden costs, like outsourced team training and legal expenses

Cultural and communication barriers in offshore models

Unsure of which model to go for?

We’ll clue you into various scenarios that best suit each development model.

When Should You Choose In-House or Outsourced Software Development?

You should choose in-house or outsourced software development based on various factors, like budget, project scope, and talent availability.

Let’s take a look:

A. Opt for In-house Software Development When:

  • You have core business functions or proprietary technologies that require close oversight and control.
  • Your software is expected to have a long development lifecycle, requiring ongoing maintenance and updates closely tied to the company’s evolving needs.
  • Your software’s security, privacy, and data protection are paramount, and you need strict compliance and control over all aspects of development.
  • You want to build a strong internal team with specialized skills relevant to the project.
  • Your project scope will likely change frequently, requiring a flexible and adaptive development approach.

B. Opt for Outsourcing Software Development When:

  • Your projects require specialized skills or technologies that aren’t core to your company’s business and are unavailable in-house.
  • You want to reduce development costs by leveraging lower labor costs in other regions without compromising quality.
  • You want to accelerate the development timeline by accessing a larger pool of resources and capabilities available through the outsourcing partner.
  • You have a short-term project with a clearly defined scope and deliverables. 
  • You need to focus on core business activities while still advancing your software development project.

Clearly, outsourcing offers distinct advantages under the right circumstances. 

But how do you ensure a successful software development outsourcing strategy?

9 Essential Steps to Outsource Software Development Successfully

These nine crucial steps will provide a detailed roadmap for choosing an exceptional partner and establishing the right software development outsourcing processes:

  • Choose an outsourcing partner based on your project requirements and budget.
  • Conduct an in-depth background check to confirm your potential partner’s credibility, expertise, and track record.
  • Formalize contracts, like Service Level Agreements (SLA), that define expected deadlines and project delivery quality.
  • Clarify intellectual property ownership and confidentiality terms through NDAs to protect your assets and information.
  • Establish clear communication protocols to facilitate smooth interactions, like a shared Slack channel for regular updates.
  • Set specific performance metrics to monitor the progress and quality of the work delivered.
  • Develop strategies to identify and mitigate potential risks, keeping the project on track and within scope. For instance, a good partner would have comprehensive data protection protocols in case of a data breach.

FAQs on Outsourced Software Development

Here are the answers to a few other questions you may have on outsourcing software development:

1. What Is a Hybrid Outsourcing Model?

A hybrid outsourcing model combines the direct oversight and alignment of an in-house team with the scalability and specialized expertise of outsourced developers.

For instance, a company might develop its core software products in-house, like payment processing systems, while outsourcing aspects like mobile app development or testing to external agencies. This hybrid approach allows them to leverage its internal strengths while tapping into global talent for niche areas.

2. What Types of Software Development Projects Can be Outsourced?

  • Mobile App Development
  • Web Development
  • Product Development
  • Ecommerce Platforms
  • Custom Software Development
  • Software Testing and Quality Assurance (QA)
  • Maintenance and Support
  • Cloud Computing Solutions
  • Data Analysis and Business Intelligence
  • Blockchain Development
  • Artificial Intelligence and Machine Learning Projects
  • Internet of Things (IoT) Applications
  • Cybersecurity Solutions
  • Enterprise Resource Planning (ERP) Systems
  • Content Management Systems (CMS) Development
  • Game Development

3. How Do You Find Professionals for Your Outsourced Software Development Team?

You can find the right talent for your software development needs using the following methods:

  • Partner with a seasoned outsourcing company, like Distillery, which offers you access to top-tier developers skilled in the latest technologies and methodologies. They streamline the hiring process, matching you with professionals who fit your project’s specific needs.
  • Leverage platforms like Clutch to find agencies or freelancers with high ratings and relevant expertise.
  • Attend industry conferences or tech meetups, which can be excellent venues for networking and discovering potential partners. 
  • Ask for candidate referrals from your professional network.

We’ll tell you why partnering with a reliable outsourcing partner like Distillery is the best way to outsource your software development process.

Why Is Distillery the Best Software Development Partner?

Distillery is an award-winning nearshore software development company that offers superior tech talent in Latin America and cost-effective software development solutions.


  • We offer seasoned specialists in all areas of development — from product design and quality assurance testing (automatic and manual) to custom software development.
  • Our developers are skilled in various tech stacks like Drupal and Cypress. 
  • You’ll have complete visibility over your software development process.
  • You can pick various outsourcing models, like staff augmentation, dedicated teams, and end-to-end software outsourcing

Contact Distillery to tap into these exceptional benefits right away.