Five years ago, flights to China from Europe, North America, and Japan were filled with sales managers seeking markets for their companies' products. Today those flights have as many procurement and supply chain managers as marketers. Leading Western and Japanese companies are no less eager to source Chinese parts and products for developed markets than to sell into one of the world's fastest-growing economies.

The country's rapid rise as a low-cost manufacturing hub is what draws these men and women. Retailing giants such as Carrefour and Wal-Mart Stores are going to China to buy an expanding range of goods—from televisions and tools to clothing and crockery—for 25 to 50 percent less than the cost of comparable goods made in developed countries. Automakers around the world are pressing their leading suppliers to open operations in China or are themselves trying to source components there (see "Global sourcing in the auto industry"). Although the proportion of goods sourced in this way remains small even for companies that began buying Chinese-made goods more than a decade ago, the pace is accelerating, particularly in high technology, consumer electronics, retailing, and some industrial goods. The result is that leaders in these sectors...