IMHO the primary problem with offshoring vs using employees was always principal / agent problem and incentives.

There was never a strong incentive for your "partner" to actually finish the job, they got more money from overruns, fixing defects, sunk costs, requirements churn, overstaffing, giving you juniors and billing for seniors, etc etc etc.

There were also issues with cultural differences, communication and lack of understanding of the "customer" - but they are minor and resolvable compared to the core problem.