That's been the pattern when US companies outsource to "cheap" foreign countries: as soon as the people in the foreign operation learn all your trade secrets, intellectual property, and general know-how, they quit and start up their own operation, selling the same product for less to WalMart or some such.
But it does improve the CEO's numbers for the first few years.
The problem is that nobody is immune to this kind of thing, whether or not he sets up a plant in China. Any given Third World company can hire your ex-employees to set up a plant for them. There are developed country consultants who specialize in this kind of thing. A fair number of retired Japanese workers from the major keiretsus are making a good living doing consulting work for Chinese companies. After all, it's not exactly a big deal to run ads in Japanese newspapers or set up an account with Japanese headhunters for former big company talent.
The kicker is that few companies make their own production equipment, so a lot of the machinery a Third World company needs to make anything it wants can be bought. Capital equipment accounts for most of the developed world's exports to Third World countries. In many cases, they're not just buying the equipment to make stuff for the local market.
The only way for companies that make run-of-the-mill stuff to survive is to move to a cheap labor locale, whether it's China or elsewhere. Because its domestic and foreign competitors certainly will, and in that arena, product pricing extremely competitive.
If you have a product that's patented or is manufactured using trade secrets essential to its manufacture, domestic production is the way to go. The question is - how many companies are in such a position?