We're in what I'll call the third wave of offshoring now. There are pockets of offshore developers who are actually interchangeable with US-based teams; but the cost difference is more like 25-50% less than the previous waves that were promising 90% cost savings.

My last company ended up outsourcing from Mexico, Colombia, Uruguay and Argentina with good results. We often didn't tell clients they were offshore and billed US rates for them and pocketed the difference. Over the course of about 5 years we had let go our US-based teams because they were just too difficult to hire and retain for the marginal increase in quality.