...they don't know how to manage remote employees. I find this difficult myself, but primarily because I ad hoc manage a few people who are remote - I think if you manage the entire team in a remote fashion, it can be a win.
With a management process built to support this type of team - remote teams actually coordinate and communicate better than physically co-located teams.
We currently have a single remote team (many other teams in-house) at our company - and they're fantastic. That's primarily down to the fact that the guy running the team (also remote) has a great and transparent system for communication that works well.
Now, there are many reasons why it wouldn't work for a given company - but I can definitely state that it can work, and work REALLY well - given the right circumstances.