There are certain downsize of offshore development like communication, cultural differences etc.
One time I spoke with the owner of a failing software company who was hoping he could make his company more competitive by hiring offshore labor. The trouble was that he was unable to effectively manage his team in the U.S. -- if couldn't manage those people, there's no way he could manage a relationship with a development shop overseas.
Offshoring requires impeccable project management to succeed, on both sides of the relationship. You can hire management people affordably in India and other places places, but many of the businesses drawn to outsourcing pinch pennies excessively and fail to make this important investment.