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Outsourcing Becomes the New Insourcing

Christopher Barker
July 1, 2009

Not long ago, shifting manufacturing facilities to China was all about reducing labor and other manufacturing costs for products bound for export.

Today, the trend of American manufacturing companies moving operations into China continues in full stride, but the enticement to do so has changed dramatically. For mining-equipment manufacturers such as Joy Global (Nasdaq: JOYG  ) and Bucyrus (Nasdaq: BUCY  ) , growing operations in China have more to do with positioning themselves nearer to the rising goliath of global industrial demand.

Countless bellwether industrial sectors -- from thermal coal to steel -- weave a common thread: China is the unavoidable keystone to sustainable recovery for the global economy. Accordingly, analyst Charles Brady with BMO Capital Markets recently highlighted a manufacturing presence in China as a primary key to competitiveness for the makers of heavy equipment.

I agree with that perspective, and I've touted Joy Global and Bucyrus as best in class -- not only for their targeted exposure to the mining of coal and other key commodities (sectors on which I'm decidedly bullish over the long-term), but also because they have moved effectively to establish their presence in this formidable emerging market. Bucyrus recently inaugurated a new headquarters in Beijing to support operations there, while Joy Global made a strategic acquisition in China