China's Outsourcing Appeal Dimming

A survey released in June by the audit and consulting firm Deloitte found, however, that U.S. manufacturers consider locations in North America, including Mexico, the most desirable for expansion over the next three years.

"Instead of finding cheap labor halfway around the world, the key will be to find the cheapest labor force within reasonable shipping distance," Jeff Rubin and Benjamin Tal, economists for CIBC World Markets, wrote in a recent report.

"In a world of triple-digit oil prices, distance costs money," the researchers said. "And while trade liberalization and technology may have flattened the world, rising transport prices will once again make it rounder."

Other factors are helping drive a flight from China: the increasing value of the Chinese currency, the yuan, vis-à-vis the dollar; a new labor law; the repeal of some export tax rebates; and inflation. Many companies say they are also motivated by a sense of patriotism and environmental concern.

Farouk Systems is moving production of its flatirons, hair dryers and brushes from China to a factory in Houston, creating 1,000 American jobs. "Our profit may be not as high in the short run, but in the long run, we feel it's better to help the U.S. economy," said Jessica Gutierrez, the company's public relations manager.

Sagus International, which owns the classroom furniture manufacturer Artco-Bell, will make its colorful ergonomic desk and chair sets for primary and secondary schools in Texas instead of China. "I think all of us are proud to be Americans," said Stephen Sykes, vice president of marketing at Artco-Bell.

Eight years ago, Kazazian was an entrepreneur producing family-style outdoor gear and looking to expand his operations. Sun Yun was a 25-year-old salesman at his father's down factory in an industrial part of Shanghai who wanted to get into the export business.

They met online in 2000 and started making inexpensive sleeping bags that quickly became a bestseller at Wal-Marts, Kmarts and Targets across the United States.

But as oil prices started to rise, Kazazian began to worry.

Given that 1,800 sleeping bags could fit in each container, Exxel was soon paying about $4.44 to ship a bag that retailed at Wal-Mart for $9.99.

"Even if they made the bag for free in China, it would still be too expensive," he recalled thinking.

Kazazian began to research what it might cost to produce the bags in the United States. The company still had a factory in Haleyville that had been mostly idle for the past few years. He was surprised to find that with transportation costs factored in, it would be 4 to 5 percent cheaper to produce there than in Shanghai.