Personally, I believe in finding the best team wherever they are in the world. But, unfortunately that's not an easy thing to do.
ps- just saw you are the creator of http://everytimezone.com/ I have it bookmarked and constantly use it. Thanks for developing!
And I never said a thing about Malaysia. I am highly skeptical about wage/currency arbitrage.
I'm talking about the smart people who'd prefer to live in their hometowns/states, or with their spouses/mates who need to move for their job, etc., around the US, Canada, and some other Westernized countries.
A dirty, crowded, expensive city isn't everyone's cup of tea. Not everyone gets a nerd-on about being surrounded by other "ambitious" 22yos in what is essentially a monoculture. Not a thing on earth could lure me to live in San Francisco, for example.
There are a lot of people out there who agree with me, and those people can't be hired for $15k, but they can be hired for $85-120k, and in most cases, if you are savvy about managing, they can produce great work remotely.
I've worked with more than a few terrible developers who have exemplary-looking college and startup pedigrees.
My point is that on a macro scale it does reduce risk. Otherwise these ambitious 22 year olds making $120k+ wouldn't exist...
SV is great for 3 things:
1. Insane amount of capital to growth (and to exit big)
2. Access to $120k/yr+ salaried Stanford/MIT grads (among others)
3. Tech-savvy early evangelists
If your company doesn't need these things to survive, stay far away from SV. It's not worth it. There are however other areas that possibly have all 3, but not to the extent of SV. The ones I've personally identified are Austin (US), London (UK), Stockholm (SE), and Berlin (DE). What you get in return is cheaper cost of living (London and Stockholm, you just need to live further outside the city) and therefore cheaper wages.