More and more midmarket companies are opting to outsource part of their business to offshore partners, but the practice can become a nightmare if done in the wrong fashion. Dissatisfaction runs high: In one survey of 130 CIOs last year, New York-based consultants EquaTerra found that 42% were dissatisfied with their outsourcing relationships.

And in April, a Gartner Inc. survey of 200 European executives found that 55% renegotiated outsourcing arrangements--both onshore and offshore--before the contracts ended. The main reason: lack of flexibility, followed by higher than expected costs.

Yet despite the difficulty of managing international relationships, expectations and workflows, companies today are looking to partners in India, Russia and elsewhere not just for piecemeal development work, but for strategic business projects. Whether it's taking over a full product line or building half of an entirely new product, offshore partners are becoming intrinsically engaged.