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



Q.7:- Differentiate between contract manufacturing and setting up wholly owned production subsidiary abroad.

 

Answer:-



Contract manufacturing Wholly owned production subsidiary
A firm enters into a contract with one or a few local manufacturers in foreign countries to get certain components or goods produced as per its specifications. The parent company acquires full control over the foreign company by making 100 per cent investment in its equity capital.
The firm has limited control over the local manufacturer. The parent company has full control over its operations in another country through the subsidiary.
There is no or little investment in the foreign countries The parent company buys up the entire equity of the firm abroad and makes this firm its subsidiary.