The modern business environment globally is extremely competitive. Various ideas are being developed by different companies and individuals across the globe in unique ways. All kinds of resources are quite limited and to succeed, one should put all of their efforts and time into the idea and its development. We live in an era of startups and small businesses. They dominate the labor market as well. However, to start off in this competitive market, employees might have to wait for a few years.
Almost every startup that has found immense success lately was founded by a group of individuals or even a single person. However, their great success and financial stability are not results of luck. There is no overnight success when it comes to running a business, especially a small one. Developing an idea and making it into a product or a service requires countless hours of tireless work and energy. The vast majority of such startups or enterprises simply can not afford to pay for labor. Even when they have enough to hire workers, they often prefer saving up or spending the available money on something more valuable.
This usually is a major problem with startups. Their founders work hard and tirelessly, thinking that everything is going just fine. In reality, whether it is a big or a small one, the company needs lots of attention and expert work in various areas. One person with knowledge and experience in a particular field can not do accounting, give legal advice, and all of these whilst actively working on the core concept of a startup. Yet, hiring and spending money on labor is not the only solution at an early stage. Finding answers on the internet or consulting acquaintances could help a great deal. However, at some point in every company’s life, the time comes to welcome employees. When this time comes, companies usually have two primary options: outsourcing and in-house hiring. Which one is cheaper and comes with more benefits? We are here to explore.
Benefits and drawbacks of outsourcing
Outsourcing is a business practice in which a company in need of labor hires an outside organization that is willing to provide it with relevant work. Besides organizations, there are quite a few online platforms like ‘UpWork’ that help both individual freelancers and companies find adequate solutions. Regardless of the differences, the vast majority of the characteristics of individual freelancers and outsourcing companies are extremely similar. Therefore, we will list their benefits and drawbacks together.
Outsourcing is mainly used by businesses of all sizes to cut costs and make the work more efficient. Yet, many people think that outsourcing is not for everyone. The tendency is that outsourcing work is much cheaper than hiring in-house but this also depends on the location of the company. The local cost of hiring a particular professional in-house should always be considered before making a decision to outsource.
Moreover, outsourcing might not be the best option for some very specific and technical tasks.
However, when looked into it becomes quite obvious that the majority of products we have today (digital products that is) would simply not exist without outsourcing companies. You see, many “brand owners” simply do not have the capacity to hire whole teams of in-house developers at their leisure. This is associated with not only the salaries of these people, but also huge overhead costs in terms of taxes, office space, equipment and etc. Therefore, hiring a company that has already thought of these issues is the primary focus for those who actually look for these services.
If you’re not yet convinced that everybody uses outsourcing, imagine a service that you’d think would not exist without their own developers. Now, this does not have to be a tech company (because they usually are the outsourcing providers themselves), but let’s say an entertainment company.
In entertainment, the vast majority of companies employ designers and maybe web developers for their platforms, but when it comes to heavy software, they almost always refer to other companies. Take the gambling industry as an example. The company, although full of capital would still rather employ only a marketing team and a web-dev team (which is usually quite easy to do). But when it comes to the content of the website, they mostly commission or straight up buy games from other companies. This is most notably relevant in European companies, who contract developers from overseas. For example, all of the German/British/French or any other European slot games should be called high quality New Zealand slots, because that’s where they are most likely to be developed. Yes, many casinos outsource their development requirements to Kiwi developers as they have proven themselves an obvious choice in the past.
Benefits of outsourcing:
- Outsourcing can be just the right fit for short or medium-term projects. Usually, the vast majority of individual freelancers look for this type of work. However, outsource providing companies and organizations can adjust to long-term work contracts.
- You can focus entirely and completely on the core idea of your business and its development. The work that just needs to be done will be taken care of by someone in another part of the world.
- It is extremely easy to find outsource work, particularly through platforms such as Upwork. Freelancers with all types of experiences are eager to take up projects both short and long term. Such platforms ensure that freelancers who want to work actually have qualifications and experience.
- The price of outsourcing work is predominantly cheaper than in-house hiring. The price difference is particularly visible when an American, British, or a Eurozone company hires freelancers from countries with less stable currencies. However, in some cases, freelance work can end up being much more expensive.
Drawbacks of outsourcing:
- There is no continuous interaction between the employer and the freelancer. Their involvement in the business is minimal. Therefore, the work they do only helps with specific tasks rather than the greater picture of the entire company.
- Working with someone from the other side of the planet can cause lots of inconveniences for both sides. Adjusting with the time difference can sometimes be practically impossible, causing major delays in task allocation and the result delivery.
- Geographical differences also cause the presence of different perceptions across the globe. For example, a freelance designer in the United Kingdom can have a completely different idea of the website design than the one in Japan. Such an example was also given before with the New Zealand casino platform.
- Despite the legitimacy of freelance-hiring platforms, they can still end up being fake. Some of their CVs do not match with the actual knowledge and experience. Therefore, the lack of adequate knowledge can lead to paying a lot for unskilled labor.
- Freelance workers often extend the period of a task or require a pay rise. Some of such requests are legitimate but arranging details and overlooking the work process is much more difficult without them being physically present.
In-House hiring: the traditional solution that costs a lot
When it comes to In-House hiring, there are obviously a lot of benefits that could help the business in many ways. However, are drawbacks as well. As we are comparing prices of outsourcing work, the companies that we bring as examples and base our analysis on are small.
Benefits of In-House hiring:
- In-house employees are more likely to stay in the company over a long length of time. Their own space and the feeling of belonging gives them an incentive to remain.
- Face to face communication is very helpful in reaching adequate solutions. Such communication can increase the engagement of employees in particular projects, as well as in the company’s business on a larger scale.
- Technical issues and small problems can be resolved faster and more conveniently.
- The absence of time or geographical differences ensures that the communication will be smoother and faster at all times.
Drawbacks of In-House hiring:
- Hiring In-House can be quite expensive in many countries. Across Europe and the United States, hiring means taking up some responsibilities such as insurance guaranteed paid leave. Younger employees demand even more benefits from employers to keep themselves happy. Besides, hiring In-House remains generally more expensive in comparison to freelancer workers that can be found on different platforms.
- Finding, interviewing, and negotiating with potential candidates can take quite some time. Hiring is a lengthy process that includes lots of contracts and legal aspects. This also adds to the final cost of an In-House employee.