Quite a time ago I wrote about "good" outsourcing which is focused on business value delivery rather than on potential cost savings. Even when we speak about outsourcing to offshore locations costs should not be the major factor influencing the decision. What is more important is the ability of the vendor to deliver on promise. Deliver business value on schedule and within budget. If you read Outsourcing Handbook by Construx you will see that cost savings are not listed among 10 common reasons to outsource a project. Although the study did not explicitly focus on offshore outsourcing I believe the results would not much different. Outsourcing is there to help you leverage your own potential by developing your core competencies. Budget savings should be seen as vendor's ability to master his software engineering approaches to achieve higher efficiency than with in-house development team.