If your requirements and scope of work is well defined and having budgetary constraints then this is the model for you.
Pay for what you consume, that is time and material model. If your requirements are not totally clear to start with and it gets evolved as development shapes up and you look forward to provide continuous feedback to improve upon then this is the right approach to take.
Offshore development center model is now a popular business model which helps to lower operating expenses and raise your productivity levels by leveraging talent offshore. Idea of remote teams which acts as extension of your team is also gaining traction.