The New China?

When Patrick Kruse realized he'd have to manufacture offshore if he wanted to remain competitive, he started with China. That gave him the labor cost savings he needed, but quality was sorely lacking. "We actually had to refuse some shipments, which really hurt our business," says the 45-year-old founder of Ruff Wear Inc., a Bend, Oregon-based maker of dog booties and other canine gear with $2 million in 2005 sales.

Another entrepreneur suggested Kruse check out Vietnam, and provided a referral to a factory owner there. When Kruse visited, he found a booming sewing industry catering to European buyers, which had developed during the years when Vietnam was on the outs with U.S. trade policy. Kruse noticed that many of the factories in Ho Chi Minh City specialized in backpacks, climbing gear and other products similar to the performance canine apparel and equipment Ruff Wear sold.