After reading some related posts here and having further discussion in the team we come to the following conclusions. I hope the would be useful to others here.
About XML configuration (which we are using up to now), we decided to keep it for dependencies defined by libraries (regardless if being developed by us, or by third parties).
Libraries, by definition, provide a particular functionality and can be used in various scenarios, not necessarily involving DI. Therefore, using annotations in the library projects we develop ourselves, would create a dependency of the DI framework (Spring in our case) to the library, making the library unusable in non-DI context. Having extra dependencies is not considered a good practice among our team (an in general IMHO).
When we are assembling an application, the application context would define the necessary dependencies. This will simplify dependency tracking as the application becomes the central unit of combining all the referenced components, and usually this is indeed where all the wiring up should happen.
XML is also good for us when providing mock implementations for many components, without recompiling the application modules that will use them. This gives us flexibility when testing running in local or production environment.
In regards to annotations, we decided that we can benefit using them when the injected components will not vary -- for instance only a certain implementation for a component will be used troughout the application.
The annotations will be very useful for small components/applications that will not change or support different implementations of a dependency at once, and that are unlikely to be composed in a different way (for instance using different dependencies for different builds). Simple micro-services would fit in this category.
Small enough components, made up with annotations, can be used right out of the box in different projects, without having the respective applications to cover them in their XML configuration. This would simplify the application dependency wiring for the application and reduce repetitive setups.
However, we agreed that such components should have the dependencies well described in our technical documentation, so that when assembling the entire application, one can have an idea of these dependencies without scrolling through the code, or even loading the module in the IDE.
A negative side effect of annotation-configured components, is that different components could bring clashing transitive dependencies, and again it is up to the final application to resolve the conflicts. When these dependencies are not defined in XML, the conflict resolution approaches become quite limited and straying far from the best practices, if they are at all possible.
So, when going with annotations, the component has to be mature enough about what dependencies it is going use.
In general if our dependencies may vary for different scenarios, or a module can be used with different components, we decided to stick to XML. Clearly, there MUST be a right balance between both approaches, and a clear idea for the usages.
An important update regarding the mixed approach. Recently we had a case with a test framework we created for our QA team, which required dependencies from another project. The framework was designed to use the annotation approach and Spring configuration classes, while the referenced project had some xml contexts that we needed to reference. Unfortunately, the test classes (where we used org.testng with spring support) could only work with either the xml or java configuration classes, not mixing both.
This situation illustrates a case where mixing the approaches would clash and clearly, one must be discarded. In our case, we migrated the test framework to use spring xml contexts, but other uses could imply the other way around.
