Background It is evident that due to the globalization, offshoring and cross-national collaboration has become a natural evolution for many companies which have created the virtual world. The virtual world has many advantages, but when this is put into practice it turns out that there are also some disadvantages that affect the teams that are working with different sites. Teams face big challenges in communication and collaboration due to the physical distance, cultural differences and time zones. While believing that the work becomes more efficient, this process is at the same time slowed down due to the challenges that arise that affects the performance which in turn affects the costs. Purpose The purpose of this study is to develop an understanding about whether or not there are differences in globally distributed teams and co-located teams in terms of soft factors, team performance and cost efficiency. The projects that will be studied are global software development projects where the teams are either located in Sweden or in India. Method This study is a case study at Ericsson that operates in many distributed software development projects where team members are located all over the world. 11 projects were selected and compared. Two surveys were made in order to collect data from developers who worked with the different projects that were selected. Furthermore, internal data about the performance for each project were collected and used in the statistical tests together with data from the survey in SPSS. The performance data was also used in order to calculate the performance deviations from the expected performance and in order to calculate the associated costs. Results There is a statistically significant difference in communication efficiency, shared identity, trust and cultural clashes between co-located and distributed teams. These soft factors are strongly related to the team performance. The co-located teams perform better than expected while distributed teams perform worse than expected which also increase the extra costs in the project. Conclusion The communication efficiency, shared identity and trust are higher in co-located teams, and the values of cultural clashes are lower than in distributed teams. Co-located teams perform better than distributed teams and the performance in co-located teams leads to cost savings while the performance in distributed teams leads to cost losses.