Contract Manufacturing
The term ‘contract manufacturing’ refers to an international business model in which a company contracts with a local manufacturer in another country to get certain components or goods produced according to its specifications. Contract manufacturing comes in three major forms:
- Production of certain components, such as automobile components and shoe uppers. These components can be used to manufacture cars and shoes;
- Assembly of components into final products, such as hard drives, motherboards, floppy disk drives, and modem chips in computers;
- Complete manufacturing of products, such as garments.
Local manufacturers produce or assemble the goods according to the technology and management guidelines provided by the foreign company. Local producers make or assemble the goods, which are then delivered to international firms for use in their final products or are sold as finished goods by the international firms under their brand names in other countries, such as the home country and the host country. Today, all major international companies such as Nike, Reebok, Levis and Wrangler have their products or components manufactured in developing countries via contract manufacturing.
