It used to be that when U.S. business people turned to the East for sourcing opportunities, they turned toward the Far East—China and India. Now, a growing number of companies are turning their compasses toward Eastern—and Central—Europe.

"I see a lot of opportunity in Eastern Europe," says Shelley Stewart, vice president of supply chain for Tyco International, and this magazine's first Supply Chain Manager of the Year . He isn't alone.

"Manufacturers are realizing that China isn't the answer to everything," says Premysl Pela, managing director for Central and Eastern Europe for Ariba. He says companies in a variety of industries, including automotive, controls, electronics, fluid power, materials, off-highway and packaging, are either sourcing in that region or investigating the pluses and minuses. There are several of both.

For example, labor costs are lower in all countries in the region. But, in some countries, productivity per employee is lower too, and that could wipe out any labor savings. There may also be quality and infrastructure issues in some countries. And, says Pela, there could be capacity constraints.

"You have to be aware of capacity because it determines whether the supplier can fill your needs over the long haul," he asserts. "Increasing capacity is expensive."

So which countries in Eastern and Central Europe hold the most promise? Hungary and the Czech Republic have the best infrastructure, Pela says. Slovakia has a flat tax that may attract U.S. companies, but it and Poland have less-well-developed supply bases. Romania, Bulgaria and Estonia have among the lowest cost of labor—but their productivity rates are among the lowest too.

The message here is clear: When focusing on Eastern and Central Europe—as when you focus anywhere—adjust the binoculars so you can see the big picture. And calculate all your potential costs.