I'll agree that outsourcing is a more appropriate term, I used the word offshoring in my initial post without thinking because I thought (incorrectly) it was less politically charged than outsourcing. I'm going to agree with SwellJoe and say that there's something inherently xenophobic about the word offshoring.
Your mistake is equating development to production. Making software is difficult because designing upfront and then expecting the result to reflect "what users want" is an oxymoron. Instead think "just-in-time" design and creation of a software product in very close communication with users.
'... total outsourcing leads to delayed and inferior products due to human factors and mis-communication ...'
The real "value add" here is being able to "optomise employee face-time" with your "unit profit generators" (users) through "space-time" savings of costs per "CSM" (cubicle square meterage), delivering superior "user expectations".Outsourcing in this context is just another business fad. Feel free to insert your own business "Buzz words" in place of place of the ones inserted.
I think for startups, outsourcing is the best term to use.