Here is an interesting story about outsourcing to China, where poor quality made the cheap labor irrelevant.
Six years into a Chinese joint venture, Michael Allen was ready to shut down his fledgling stereo equipment company, Jolida (joe-LEE-da).His Shanghai-made amplifiers and CD players were burning out and breaking down; paint bubbled and peeled, volume knobs made buzzing sounds. Overwhelmed by returns of faulty products, in 2001 Allen was losing money, being hounded by creditors, struggling to make payroll and fending off his wife, who insisted he should flip the "off" switch on his crazy hi-fi venture and find something else to do for a living. "It seemed to me there was no way out,"recalls Allen, who had to sell a small apartment building to keep Jolida afloat. "I just wanted to curl up and make it all go away."
As I've said before, too many companies see outsourcing as a panacea. Like any other business decision, it involves tradeoffs that have to be analyzed.