When does outsourcing make sense?

Here is my $.02:
Understanding how a certain embedded systems/realtime systems work is a domain knowledge thats rather hard to come by. Knowing how to use a programming language (thus using a programming language to translate a problem into a solution) is a service that may be temporarily difficult, but in the grant scheme of things its something thats rather easy. If a problem can be described without meeting, telephone conferences, or flying to far away places, its a simple service (just like renting a car, or getting a plane ticket, or placing a telephone call). If a problem requires more elaborate means of communication, most likely you're talking about a product, which requires domain knowledge to build (such as a plane, a car or something as simple as a telephone).

Outsourcing a procedure is easy, outsourcing a product is not.
Outsourcing a service is easy, outsourcing domain knowledge is not.