Distributed software development can be productive
This doesn’t mean that all outsourcing of software development is uneconomic. As Jeff goes on to explain in that video, a Dutch firm, Xebia, has successfully grown hyper-productive teams using Scrum that are geographically distributed.
But Xebia’s teams, some in The Netherlands and some in India, are set up in a counter-intuitive way: instead of having complete teams in each country, each team is split between the two places, with half its members in The Netherlands and half in India. The dispersed teams were at least as productive as colocated teams and sometimes more productive than the teams located wholly in the Netherlands.
Apparently splitting the teams geographically forced more conversations among the team about what the client really wanted. Being forced to explain to the developers in India each day what the client wanted helped everyone get clearer and so the teams as a whole tend to become more productive
so co-location isn’t always the best answer – with good management.