Either scenario is feasible - of course it depends on what you want to do.
With regard to AD - we rarely concern ourselves with that when considering development - very infrequently are actual users relevant during development cycles. With regard to specific questions:
1. Higher cost of hardware and less control over product. QA (assuming in UK) will be slower (since you'll be accessing Indian servers). Additionally, you'll have overhead of merging the changes into one codeset (not impossible, but a pain). The biggest
advantage is simultaneous entity development, but with merge requirements. Also - Perhaps a risk of localization/language issues with offsite server.
2. This is typically how we see the situation - with the offshore team 'taking what they need' and then working locally on their systems, re-importing everything into the main source at EOD.
-Marc W | http://www.webfortis.com | marc (at) webfortis (dot) com