The three big challenges I see are how to identify the rock stars, management culture, and time zone. It's possible to overcome all of those, but you'd need significant expertise hiring and managing Indian teams.

The hardest part would be to build a team of true startup hustlers, because the outsourcing industry has not been built around those types of people. Traditionally you have to have very strong top-down management and clear requirements since the mentality on the other end is to do what your told, avoid giving bad news, and maximize billable hours. This is something that large companies with established products can do a lot easier than startups.

In general the reduced execution risk is not worth the cost savings because you don't yet have a business, you are trying to build one. The safer bet for a startup very tight team working hand in glove where every employee is obsessed with the high-level product.

I suspect there are cultural issues that break down communications.

I've seen people who've got really cool sites to show that they've worked on in their spare time, or worked on with local collaborators.

Somehow, and it's hard to pinpoint how, when they try to work with someone in the West, it breaks down. Understandings that are natural to you sitting in one part of the world may have been completely missed by your remote guy in the East. Doesn't always happen, but it's enough to warrant a risk premium.

> If engineers in India are, say, 5x cheaper fully-loaded than in the US; and some of them are awesome engineers; why are there not startups in the West competing to pay the rock-stars a Western salary but have them stay in India?

If you're paying them a Western salary, why not relocate them to be local? In my personal experience this is what I see happen when we do ID an engineer who isn't local but good

"If engineers in India are, say, 5x cheaper fully-loaded than in the US; and some of them are awesome engineers; why are there not startups in the West competing to pay the rock-stars a Western salary but have them stay in India?"

Doesn't that remove any kind of gain from outsourcing? What would be the point? You now have the downside of SV salaries and the downside of managing remote teams across the globe.

"With all the close ties between the Indian IT sector and Silicon Valley I would expect it to be common practice especially among startups to try recruiting the best away from, say, InfoSys by simply paying them what you'd end up paying an inferior engineer locally."

Usually those worth their salt aren't working for Infosys in the first place.

They just don't have the technical ability their western counterparts do, obviously some do but finding them is a crapshoot. Also if you pay people too much they won't stay with you and that will be a much bigger issue when you can pay someone more than they would otherwise be getting (even if it's costing you less)

There's also control, if you outsource your whole project then why do your workers even need you? They could just do it themselves and cut you out completely.

I don't think startups would have enough funding or the time to take advantage of it. MVPs would be done by the founders because of the time constraints (setting up a whole outsourcing setup would take a bunch of time). Also, if you fully outsourced all the startups tasks then your group that your outsourcing to doesn't need you. If a startup was well funded and has larger projects I could see that though.

There's no grand mysterious reason. Businessmen want cheaper. They are like "Indians are already used to low payments, let's offer them 15% more so they are ecstatic". In my observations, there's nothing else to it.