Hiring Internally vs Externally: Pros and Cons
Hiring internally vs externally helps companies choose the right hiring approach. Internal hiring is faster, cost-effective, and boosts morale, while external hiring brings fresh skills and broader talent. Understanding both helps businesses make smarter recruitment decisions.
📑 Table of Contents
Companies use two hiring methods. One is external hiring, and the other is internal hiring.
Whichever method is used, companies have one goal: to hire the best talent.
It’s essential to have an efficient hiring process to ensure a well-staffed company.
To ensure that, one should check the employee’s qualifications and ability to meet the requirements.
Now, if you’re confused and the war of hiring internally vs externally is going on, you must know both internal and external hiring processes.
In this blog, we will explore,
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- What is internal hiring?
- What is external hiring?
- Why do companies hire internally or externally?
- What are the pros and cons of hiring internally and externally?
- What are the pros and cons of hiring externally and internally?
- The difference between internal and external hiring.
Before we get into hiring internally vs. externally, let’s thoroughly understand the difference between the two terms.
What is Internal Hiring?
In internal hiring, the company either promotes or transfers the existing employee to a new position.
This is possible if the company has an open position and the employee shows interest in the position.
Also, if management wants to promote an employee, internal hiring is used.
What is External Hiring?
This is exactly the reverse of internal hiring. The company hires a candidate who is not an existing employee and fits a particular position.
This is a general hiring process that helps companies gain a different perspective. By adding a new employee, the company also generates employment opportunities for new talent.
Why Do Companies Hire Internally?
Companies should prioritize their employees first.
Hiring internally recognizes your existing employees’ efforts and offers better opportunities.
The internal recruitment process helps employees achieve their career goals and shape their growth.
What Are the Pros of Internal Hiring?
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- Speedy Hiring: The hiring process becomes faster. Since you’re already aware of the employee, screening and onboarding become easier.
- Cost-effective: It reduces hiring costs. Internal hiring saves on job ads, tedious recruitment cycles, and consultancy fees. Hiring internally can save you up to 18% of the cost of external hiring.
- Boosts Morale: Majorly, it boosts employees’ morale. As a result, the company earns employees’ trust and demonstrates career opportunities.
- Cultural Fit: The employee is already aware of the culture. Internal hires are a built-in cultural fit in that they understand the values and processes.
What are the cons of hiring internally?
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- Backfilling the position: As a candidate moves to a new position, they leave a position behind to be backfilled. The company must ensure it fills the position with a candidate with the same capabilities. But, before hiring, it becomes difficult to distribute the role and responsibilities of that position.
- Damage to employee morale: Hiring internally can also generate competition between employees. As this creates opportunities for one employee, the others who want the same position might feel competitive. This might result in those employees leaving the company.
- Limited Talent Pool: When hiring an internal employee to fill the position, the talent pool is automatically limited. A limited talent pool will not bring choice and new perspectives. A new perspective always brings different results and may highlight a few mistakes you’ve been making. Lack of fresh perspectives is a lack of innovation and creativity.
Why Do Companies Hire Externally?
Exploring new candidates brings new perspectives.
If the company cannot find the right fit within, it looks for talent outside.
This is a general hiring process that has its own pros and cons. Let’s find out!
What Are the Pros of Hiring Externally?
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- New perspectives and better skill sets: Working with fresh, innovative talent delivers the best results. This refreshes the company with new ideas and skill sets. Someone who has previously worked in the same field but for a different company might bring a different work style.
Approaching a different way of thinking also presents unnoticed mistakes. If the organization is willing to expand geographically, this is the best option. - Expand the company: Hiring internally might save time, but it won’t help the company grow and expand capabilities. Adding a new candidate expands the workforce and the company.
- Gain access to a vast talent pool: Looking externally for new candidates can yield a large pool. With a broader talent pool, the likelihood of finding the perfect candidate increases.
- New perspectives and better skill sets: Working with fresh, innovative talent delivers the best results. This refreshes the company with new ideas and skill sets. Someone who has previously worked in the same field but for a different company might bring a different work style.
What Are the Cons of Hiring Externally?
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- Training Time: Making external hires aware of the company culture can be time-consuming. When a new employee enters, there is a possibility of a clash of cultures. It takes time for them to adjust to the ongoing processes. If the candidate is a slow learner, managing training time becomes difficult, and onboarding takes longer than it should.
- Expensive Hiring: As it takes longer to train, it also increases the costs. Aside from the training costs and time, you also need to invest in advertising the job to external candidates. Assessing the external candidates is too expensive and time-consuming.
- Uncertainty about Performance: In external hiring, there is still some uncertainty about performance. The candidate might perform well during the interview but fail to understand the actual work or the company’s product/service. The skill set might not match the required task. The probability is low, but you can’t deny it.
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The Difference Between Internal and External Hiring
Let’s understand the difference between internal vs external hiring with the help of a table.
| Factor | Internal Hiring | External Hiring |
| Source of Candidates | Existing employees within the organization | Candidates from outside the organization |
| Cost | Low cost (no advertising, faster onboarding) | Higher cost (ads, recruitment agencies, screening) |
| Time to Hire | Usually faster | Usually slower due to search and selection processes |
| Training Required | Minimal—employee already knows the company | More training is needed to understand the culture and processes |
| Employee Morale | Boosts morale and motivation with growth opportunities | May lower morale if internal employees feel overlooked |
| Fresh Ideas & Skills | Limited—skills already exist within the company | Brings new skills, perspectives, and innovation |
| Risk Factor | Low—employee’s performance and behavior are known | Higher—candidate suitability is uncertain |
| Adaptability | High—already familiar with systems and culture | It may take time to adapt to the environment |
| Impact on Workforce | Creates internal movement; may create another vacancy | Adds new talent without creating internal gaps |
| Competition Level | Lower competition | Higher competition among diverse candidates |
| Long-Term Fit | Usually, a strong cultural fit | Fit needs to be evaluated during hiring |
Conclusion
In reality, there is no war of hiring internally vs externally. Both terms are similar and are used in different situations.
As we have seen before, both options have their own pros and cons.
If the company has a cost constraint and wants to spend less time on hiring, it should look for internal hiring.
If the company is willing to explore new talent and invest more in better hiring, it should consider external hiring.
If you’ve reached this far, I hope you’ve come to your conclusion. If you want to experience smooth hiring, visit www.remunance.com.
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FAQS
When should companies prefer internal hiring?
When a company needs to hire quickly, has a tight budget, or wants to encourage current employees with advancement prospects, it should prioritize internal hiring.
Is hiring internally vs externally more cost-effective?
Internal hiring is typically significantly more cost-effective for most firms than external hiring.
This is because the organization already has access to the employee’s work history, performance information, and cultural fit, reducing the time needed for screening and evaluation.
Internal hiring also reduces costs like background checks, recruiting agency fees, job ads, and drawn-out interview procedures.
Since the employee is already familiar with the company’s systems and procedures, training expenses are also much reduced.
Conversely, external hiring is more expensive overall because it often requires greater commitment to finding, onboarding, and training new people.
Why choose external hiring when internal talent exists?
Choosing external hiring, even when internal talent is available, can be beneficial for companies aiming for innovation, expansion, or change.
External candidates bring fresh ideas, diverse experiences, and unique problem-solving approaches that existing employees may not have encountered.
This is particularly valuable when the company wants to expand into new markets, adopt new technologies, or infuse creativity into stagnant processes.
External hiring also allows organizations to access specialized skills that may not be present internally.
Although internal hiring is faster and cheaper, external hiring is sometimes essential for staying competitive and future-ready.
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