Increased globalization and the consequent dispersion of IT activities around the world have driven the growth of offshore outsourcing. The share of offshore software development (OSD) in the high-cost countries has grown tremendously since the 1990s and this trend will continue in the coming years. Software development projects continue to experience poor performance problems because of their inherent complexities. Despite the cost advantages of OSD projects, the underlying risks such as cultural and geographic distances, communication and coordination challenges, and knowledge transfer complexities make OSD projects more vulnerable to failure than domestically outsourced projects. We attempt to identify the critical issues specific to OSD project failures, their underlying causes and their interrelationships using the grounded theory approach. We have conducted exploratory interviews with offshore experts from Indian and Swiss client and vendor companies. We developed a preliminary empirical model to explain the OSD project failures using offshore-specific and offshore-indispensable issues.