In-House vs. Outsourcing: What Is Best for Swedish Businesses?
The current pace of tech progress puts all businesses under the pressure of digital presence, which makes software development not a whim but a necessity. At this point, most companies face the dilemma of creating their apps and web resources in-house vs. outsourcing software development.
The choice is not easy, as a business needs to consider many factors to determine the best way to go with a digital transition. In this article, we examine the in-house vs. outsourcing issue and provide a detailed comparison with a specific focus on the Swedish software development market to show you when each option is a good solution.
Overview of the Outsourcing Market in Sweden
Sweden boasts of one of the highest proportions of digitally skilled people globally, with the rate of developers higher than the EU average. The country has a prosperous and actively expanding IT and telecom industry, and it is regarded as a leader in digital transformation in the Nordic region.
The share of IT spending in Sweden has increased from 40% in 2019 to 44% in 2023, suggesting the steady rise of offshore and nearshore integration services across all digital sectors in the state. Moreover, the digital sector is expected to grow by a CAGR of 10%+.
In terms of outsourcing, Sweden is known to have the largest IT outsourcing market in Europe, with an annual turnover of $3.9 billion as of 2020 and a CAGR of 7%+. Four industries dominate the sector:
- Software development and maintenance.
- System integration.
- Telecommunications infrastructure procurement.
- Hardware procurement.
The software development market more than doubled in 2014-2019, with COVID-19 disrupting the traditional ways of doing things and fueling the demand for software outsourcing more than ever before.
However, despite an actively developed and heavily invested IT industry, Sweden remains one of the most pressured labor markets with significant programming staff shortages. Sweden’s present-day talent shortage index is 10 (according to the Hays Global Skills Index), pointing to the peak values of the differences between the availability of development talent and the demand for it among businesses.
The highest year-to-year talent gap increases are noted in the USA, Sweden, Finland, Hungary, and Slovenia, as reported by the National Board of Trade in Sweden, meaning that the supply of development workforce can’t meet the fast tempos of digital development in these regions.
What Services Are Demanded in Sweden?
At present, the highest demand in Sweden is observed in the following development niches:
- Software development. The overwhelming majority of Swedish businesses depend on software in their operations, with 49% of companies developing their own software and the rest investing in third-party software products. Due to such heavy use of digital technology, IT expenditures have risen from $2.5 billion to $5 billion in 2014-2019, accelerating the country’s growing demand for development capacity, partly addressed with outsourcing.
- Web and mobile application development. The app development industry is versatile, with this umbrella term covering websites, apps, and e-commerce platforms. This sector is rapidly expanding, fueling the demand for front-end developers and IT consultants with a focus on mobile-friendly software.
- AI solutions development. Artificial intelligence is massively used in digital solutions today to automate processes and give businesses better insights into their data. Thus, AI developers are increasingly demanded in Sweden as part of the large-scale change in the digital economy.
- Low-code development. Low-code software solutions are a new way to save costs and development time, which is a win-win situation for programmers and businesses. Thus, low-code developer talent is in demand.
- Big data. Data is getting massive and complex, and the company’s ability to structure and make sense of its own data is the key to a strategic business advantage. Thus, Swedish businesses actively invest in big data solutions to analyze big datasets and make data-backed decisions.
- Cloud computing. Quick digitization fuels the massive adoption of cloud-based servers, storage, databases, networking solutions, and intelligence. Thus, companies need developers with expertise in cloud computing to shift to cloud-based solutions and integrate them into the existing business infrastructure.
Experts also point to the critical talent shortage in the areas of:
- Enterprise-level software architecture
- Business intelligence
- Data analytics
- Financial services
- Technical architecture development
- UX/UI design
- DevOps solutions
A logical response to all these issues is resorting to outsource recruitment. Due to the increasing demand for development services, the revenue of IT outsourcing in Sweden is projected to exceed $4.87 billion in 2023, with a CAGR of 8.64%. The average IT outsourcing costs per employee are around $893 in 2023, with the greatest number of staff outsourced for web hosting, application development, and software administration jobs.
Outsourcing and In-House: What Are the Main Differences?
What makes a particular business choose between in-house development and an outsourced development team? Here are the key distinctions these two models of software development come with.
In-house development is the process of software creation using only the company’s internal team to build the full app or web resource’s functionality. Its pros include the ease of communication between team members located in one office, simpler quality assurance at all stages of development, and a good culture fit resulting from the in-house team’s prior track record of cooperation.
However, this model has some cons, such as a skill shortage inevitably emerging in a location with a talent gap, higher development costs, and slower time to market.
Outsourcing is an approach that presupposes entrusting your software development to an external team located nearshore or far away. Let’s consider the pros and cons of outsourcing development to see when it works out and when it can become a bummer.
The benefits of this model are quick turnaround (outsourcing agencies usually have ready-made teams of developers with well-established workflow), shared risks (deadlines and scalability issues), and access to the global talent pool. Nevertheless, with outsourcing come logistical challenges, lower control over quality and timelines, and data privacy risks.
Benefits of Outsourcing for Swedish Businesses
Based on what we’ve covered in the previous section, outsourcing offers many sizable advantages to businesses, Swedish companies included. Choosing the outsourcing approach for your next software project, you get the following perks:
- No need to hire additional in-house staff. This way, you save money on the social package, taxes, and office equipment the new developers will need.
- You can choose developers anywhere. No need to limit yourself to the rare and expensive talent in your location; you can find a programmer with the needed tech stack in any corner of the world and work with them without limitations.
- You save money. The outsourcing cost is significantly lower than the development rates in Sweden and neighboring European countries. Thus, hiring programmers from other regions can cut the software budget by 50%+ and still receive a top-quality product.
Obviously, working with an outsourcing agency may pose some bottlenecks, like language barriers or a distinct cultural mindset. Still, even though entrusting your software to an outsourced provider may seem risky and intimidating to many, there are plenty of successful examples of such collaborations that gave birth to great, functional software solutions for the Swedish market. Some of them are:
- Klarna and Netguru. Klarna is a Swedish FinTech company that set up a partnership with a Polish software provider Netguru to receive top-quality front-end and back-end development services, QA assistance, and Project Management coverage. As a result, Klarna managed to launch a series of successful products on the market with higher efficiency and faster turnaround.
- Truecaller and GlobalLogic. Truecaller is one of the leading Swedish telecoms that partnered with an international software vendor, GlobalLogic, to receive end-to-end software development service, maintenance, and software support. This way, Truecaller attained greater software quality and accelerated their products’ time to market.
- Bambora and Youteam. A Swedish payments provider Bambora teamed with a Ukrainian software company Youteam to get continuous back-end and front-end development, UX/UI, and QA services. The outcomes of this partnership are quality improvements and faster software deployments.
- H&M and EPAM Systems. A Swedish fashion brand has worked with EPAM for many years, receiving its experts’ digital strategy assistance, UX design, and mobile app development services. This bond has helped H&M improve user experience and drive sales upward.
- iZettle and Symphony Solutions. A Ukrainian software development company, iZettle, supports the Swedish payments company iZettle in terms of software development (front-end and back-end), QA, and Project Management.
Benefits of In-House Teams for Swedish Businesses
Next in our discussion of in-house software development vs. outsourcing is the advantage of having all software development operations in your company. If you opt for this choice, you receive full control over the development process and sensitive project data. Besides, the workflow goes smoother as your in-house team is aligned with the company’s culture and communicates more easily. This approach is costlier, as the in-house staff is more expensive to keep due to taxes, social benefits, and hardware expenditures, and you may spend much time finding the right talent for the team. However, many Swedish companies have coped with these limitations and have been building their corporate software in-house. Here are some examples worth noting:
- IKEA. The Swedish furniture retailer has an extensive in-house development team that includes designers, developers, and software engineers covering all digital service needs of the company. IKEA doesn’t outsource any operations, starting from product design and ending with distribution.
- Spotify. The international music streaming provider with headquarters in Sweden also keeps all development and maintenance operations under one roof. The company’s in-house developers maintain and update the streaming platform to improve user experience and keep licensing agreements under control.
- Volvo Cars. Volvo has been making cars in Sweden since 1927, and its full team of designers, architects, testers, and engineers work in-house.
- Ericsson. This famous Swedish telecom, founded in 1876, has accumulated a huge team of talented engineers, developers, and researchers in-house for decades. The company’s development staff are solely responsible for innovative digital products and solutions, technological innovation, and service provision.
Comparison of Costs Between Outsourcing and Having an In-House Team in Sweden
The most popular outsourcing locations that companies headquartered in Sweden choose for software development are Estonia, Lithuania, Ukraine, Poland, etc. According to Clutch.io, Ukraine is a widely acknowledged IT hub with 1,000+ development companies, and Poland has 658 companies with a solid reputation in the industry.
Let’s make a quick comparison of the costs of hiring, for instance, a Java developer in Sweden and finding a similarly qualified programmer at a nearshore location, such as Poland. The overall breakdown of expenditures should cover not only the base pay you agree on with the hired developer but also the additional expenditures you will have to recruit, onboard, train, and house that new staff member into your in-house team.
|Salary||840,000 SEK||648,000 SEK|
|Cost of recruitment||50,400 SEK||38,800 SEK|
|Onboarding||117,600 SEK||90,700 SEK|
|Office management||42,000 SEK||32,400 SEK|
|Training||25,200 SEK||19,400 SEK|
|Social payments (vacations, sick leave, days off)||109,200 SEK||84,200 SEK|
|Fluctuation management||42,000 SEK||32,400 SEK|
This way, you will need to spend a total of 1,226,400 SEK for a new Java developer during the first year of their work in your in-house team (the costs will be lower in the consecutive years, but in case the programmer leaves your company, you’ll need to go through the same process and expenditures again). This sum converts to roughly 639 SEK per hour.
Comparing these figures to the salaries of Polish Java coders, you can see that the difference in one-year expenditures is almost 100,000 SEK, which is a cost-saving of 100 SEK per hour.
Consulting Firms Popular in Sweden
IT consulting firms are broadly popular in Sweden, and many businesses interested in building their software turn to them. Such firms provide a wide range of services, such as management consulting, IT consulting, financial advisory services, and much more. They also handle developer recruitment tasks to assist clients in software development.
Many international-level consulting companies have offices in Sweden, such as McKinsey & Company, Boston Consulting Group, Accenture, Deloitte, and the like. Besides, several reputable national consulting firms address the local companies’ specific needs and business requirements.
Overall, consulting firms are an integral part of the Swedish business landscape and play a vital role in helping companies of all types attain their strategic goals in a highly competitive market.
Factors to Consider when Deciding Between Outsourcing and In-House Teams in Sweden
As soon as you approach a new software project and are at the crossroads between outsourcing vs. subcontracting, it’s critical to consider the following parameters:
- Nature of your project. Not all projects can be outsourced; if it’s a sensitive software type with many industry secrets involved, it’s better to keep development in-house.
- Availability of local talent. Review the technology stack needed for your project; if there are no local programmers to do this job well, you need to look for outsourcing teams.
- The company’s budget. In-house development is safer but much more expensive. So, weigh the development budget to see whether you can afford in-house developers or should look for more affordable outsourcing variants.
- Strategic goals of your business. Outsourcing will be an optimal deal if you seek a long-term partnership with a reliable and affordable vendor of development services. If you want to grow into an international leader with a strong competitive advantage, nurturing and expanding an in-house team of star developers is better.
- Legal and regulatory issues. Can you outsource the project to overseas developers in legal terms? Can the provider ensure compliance with all Swedish regulations and norms? These questions should be answered before choosing any of the two options.
Even if you decide to resort to outsourcing, please keep in mind that you can always get the maximum from this partnership model if you establish the following best practices in the interactions with your outsourcing agency:
- Set clear expectations.
- Establish effective communication channels.
- Conduct regular performance reviews.
Outstaff Services with RNDpoint
If you have decided to outsource software operations, RNDpoint can become your dedicated partner in any project. We are a global software solutions provider with a decade of experience in the FinTech, banking, and AI industry, able to get your software done and launched within 2-4 months. With 250+ skilled developers on board, we build stellar software solutions and enjoy a 96% customer return rate.
By choosing the software engineering services by RNDpoint, you get a full package of advantages for your business, such as:
- Lower costs.
- Increased flexibility in business operations.
- Access to a broad pool of specialized developer skills and expertise.
- Unique insights into the local Swedish market and IT landscape resulting from many years of regional presence.
RNDpoint has deep expertise in financial software development and has many successful projects in the FinTech and banking domains. Here are a couple of customer stories showcasing our experience and commitment to client success:
Building a loan origination system for an Azerbaijani bank from scratch. End-to-end automation of all loan origination processes for streamlining the retail banking pipeline and boosting productivity sixfold.
A winning Neobank app that quickly climbed to the top-3 list of downloads among European consumers and attracted 100,000+ active users within the first year of operations. Integration of card and account operations, BNPL, and cashback functionality for frictionless user experience.
Fully automated algo-trading app design with access to the stock market. User-friendly design and richness of features, giving access to previously elite technology to retail traders and investors.
Explore your business and technical capabilities with RNDpoint