Globalization, like it or not, is inevitable, as we noted on this page in January. But there are wide-ranging ramifications—both economic and strategic—from moving manufacturing offshore. Companies from GM to IBM have set up factories in China to take advantage of the low-cost labor and high-quality manufacturing. But the move is backfiring in a variety of ways.

Writing in The Wall Street Journal recently, Gabriel Kaplan described how New Balance Athletic Shoe Inc. has spent millions of dollars in legal fees, and lost millions more in sales and brand image, when one of its suppliers in China allegedly began selling New Balance shoes on its own, and undercutting the established price.

Outsourcing jobs is a major sore point between management and labor, of course. It would be hard to find a more succinct example of the disparate views on outsourcing and shifting jobs overseas than those reported by Richard McCormack, editor of Manufacturing News, from an interview that he conducted recently with four members of the Commission on the Future of the United States Aerospace Industry. Asked whether outsourcing jobs to China contributes to aerospace industry problems, John Douglass, president and CEO of the Aerospace Industries Association, says "The Chinese aerospace industry is embryonic at best and when we do a deal with China that creates 3,000 jobs, we give them 300 of them. This is not contracting everything out to China."

Thomas Buffenbarger, international president of the International Association of Machinists and Aerospace Workers, sees it differently. "If doing a deal with China creates jobs, tell me where those jobs are created; show me where those jobs exist. They can’t do it," he says. "Every time Boeing does a deal with China, I lose hundreds more members in Seattle or Wichita. They may create 3,000 jobs, but those jobs are in China."

There are potentially long-term threats to our national security as well. Leon Gurevich, president and CEO of Rapid Development Services Inc., says "Control of U.S.-owned plants by the governments of foreign countries creates security concerns and a multitude of scenarios for disruption." Another downside to going offshore is the loss of technological know-how to nations that do not share our values. "Our ability to make tools and machines may be lost to other countries that are currently receiving our technology at no cost to them," adds Gurevich.

The bottom line is you don’t get something for nothing. Relocating factories overseas because the cheap labor and expanding markets promise more and faster profits carries a price. Ten years ago the problem was confined to knockoffs. Today, a company moving offshore is in peril of everything from creating its own competitor to losing its brand identity entirely. And it can happen to anybody.