Posted in Marketing and Strategy Terms, Total Reads: 6005
Definition: Contract Manufacturing
It is one of the ways by which firms can enter global markets. In contract manufacturing, a firm finds a suitable manufacturer in the country it wants to enter into. This manufacturer can be hired by the firm to produce its product locally. For example, to open department stores in Mexico and Spain, Sears found qualified local manufacturers to produce most of the products.
Advantages: It saves the time to setup manufacturing capability in a new country. It is very helpful in situation where the firm has little or no knowledge about the legal system and formalities of the new country.
Disadvantage: The firm is at a risk of losing some profits of manufacturing to the local manufacturer. Also, such a system provides lesser control to the firm compared to manufacturing in the country.