Both -- The most efficient inlet geometry has the shock wave impinging
on the inlet lip; if it impinges inside, the inlet "swallows the shock,"
which leads to compressor stall.

It isn't necessary that all shocks be external to the inlet, only that
stable subsonic air reach the compressor face. Some inlets are designed to
create several oblique shocks within the inlet prior to reaching a point
where an expansion of cross-sectional area (diffuser) creates a final normal
shock to decelerate the air.

R / John