Differentiate between contract manufacturing and setting up wholl… - Vidyadip

Question

Differentiate between contract manufacturing and setting up wholly owned production subsidiary abroad.

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Answer

Under contract manufacturing, a firm enters into a contract with some local manufacturers in foreign countries to manufacture certain components of goods produced as per their specifications. As a result, contract manufacturing is less risky and does not require resources for setting up the production facilities.
However, in the case of a wholly-owned subsidiary, the company has to make 100% equity investments in the foreign subsidiary and has to bear the entire losses in case of failure of its foreign operations.

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