The main cause of the difference in productivity is due to experience and skills level of the engineers that outsourcing vendors can attract, and retain. The outsourcing vendor is motivated to put together a team quickly, to start billing sooner. This is simply the nature of the business.
To counter the tendency to hire quick, rather well insist on interviewing each candidate. Of course, the outsourcing vendor must supply you with qualified and pre-screened candidates that they are ready to hire with your approval. Then, interview each candidate as you would a US-based employee, including having other engineers interview the person.
It is highly recommended to have the Engagement Manager travel to the remote facility to interview these candidates. That means the vendor must be well organized, with all candidates ready to be interviewed in a short period of time (while you’re at the remote facility). This is sometimes very difficult to accomplish, particularly for larger teams.
For an India-based offshore facility, you can alternatively have the Engagement Management travel to interview the senior members of the team face-to-face. But because this is a long and expensive trip, the rest of the candidates can be interviewed over the phone. To be fair to the candidates, the US-based team should conduct these interviews during the morning in India, this means sometime after 9:30pm in California.
For a nearshore facility, it is still recommended that the Engagement Manager make as many trips as necessary (shouldn’t be more than one or two more, even for larger teams). These trips are shorter and less expensive, and they’re worth every penny. In fact, it is highly recommended to send at least one senior engineer as well. The impact on your budget will be minimal but the payoff will be high.
Another source of productivity loss is the overhead in communications between teams which must be formalized to be effective, particularly with an offshore team. It requires extra time to prepare documents and slides that would not be necessary were they able to communicate often, throughout the day as it is the case with a nearshore team.