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Considering the offshore Developers/Testers work for a different company, would you recommend for/against having them in the onshore Scrum (first ever) effort? i.e., Just have the internal developer working with them on a daily bases to represent them onshore or to have all of them (7~9 total developers/QA) become part of the onshore Scrum effort by being treated as a distributed team.

Kashif Awan
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All of the on and offshore team members should be treated as part of the team or you aren't doing scrum. The standup can be a challenge as the phone times are always awkward somewhere.

It's really more important to have the offshore team involved anyways, they are usually the ones where communication is a challenge.

stevedbrown
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Read Scrum and XP from Trenches by Henrik Kniberg who propose 2 strategies - one common team accross different countries and the second, separated teams.

Dusan Kocurek
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its been a year and I've setup a new team in the Ukraine, Denmark and Cyprus as well as one developer in China. We use Greenhopper and are on Sprint 5 iteration. Works well using skype and join.me to share Planning Board. Everyone votes on story points. We have a group Skype chat where all group communication happens. Many people are in this position of hybrid local/remote. Make sure they communicate with each other and use the group Contact to air out issues. Also, the Daily standup is posted on Basecamp and referred to by other management.

I setup a development team in China and just ran them through a sprint, but I'm the product owner and the only one not at the office. I have a separate squad in US for design and do not include them in the China team sprints. You could fully integrate both teams (video or conference call based daily scrums, duplicate physical artifacts or online tools, both teams at sprint planning, review and retrospective) or create two separate teams. I think separate teams would be easier and you can use the output of the onshore team be the product backlog of the offshore team.