"Those [Chinese manufacturers] that have a diversified customer base—including domestic Chinese customers and European customers—may be holding on by a thread," says Panjiva CEO Josh Green. "Those that are primarily dependent on business from U.S. importers are going under."

A China Backlash?

If there ever was a time to reevaluate a company's roster of suppliers, now is that time, say supply chain analysts, due to the economic uncertainty. Many companies are taking that advice, especially with their Chinese sourcing partners. The results of an AMR survey of 130 global companies, released in December, showed that those companies planned to move more of their manufacturing and sourcing activities closer to home, which is called nearshoring.

Though respondents also planned to increase sourcing from China, the increase was less than half of what they had planned to bring closer to home. In addition, the small increase for sourcing options from China was half of what respondents had said the increase would be in a similar survey AMR conducted in May 2008. AMR's Tohamy writes in the report that the once huge cost advantage that China has held over other sourcing countries is narrowing. "More and more global companies are realizing that they can no longer put all their eggs in one basket: China," she says, in an interview.

China's reputation for low cost has always come with high risk. When asked what country or region contributes the most risk to their supply chains, survey respondents overwhelmingly chose China for nine of the 15 risks, including IP infringement (57 percent), internal product quality failure (52 percent) and security breaches (41 percent).

"This creates a dilemma for many global companies," writes Tohamy. "On one hand, they continue to enjoy the advantages of cheaper material costs and labor wages in China as well as the potential to reach vast consumer markets. On the other, however, they must continually reassess the pros and cons of operating in China."

And it seems for more companies, the risks of doing business with China are beginning to outweigh the rewards.

Tohamy notes that change is the one thing that supply chain planners and their companies can count on in 2009 and beyond. With China, she says, companies must continue to assess their global sourcing options and rebalance their sourcing partner portfolio to better manage their overall supplier risk—which will, in effect, reduce their reliance on China. "It's not going to be mass exodus [from China], and it's not going to be an immediate exodus," Tohamy says, "just an incremental change."