Contract manufacturing offers a lot of benefits to both the overseas firm and local manufacturers in the foreign countries.
- Contract manufacturing allows the overseas companies to get the products manufactured on a large scale without needing investment in setting up manufacturing services. Such companies make use of the production facilities already present in the foreign countries.
- There is hardly any investment risk involved in the foreign countries as there is no or little investment in the foreign countries.
- Contract manufacturing also offers an advantage to the overseas firm of buying goods produced or assembled at cheaper costs specifically if the local manufacturers happen to be located in countries which have cheaper material and man power costs.
- Local manufacturers in overseas also benefit from contract manufacturing. Manufacturing jobs obtained on contract basis in a way provide a ready market for their products and ensure greater utilisation of their production capacities if they have any idle production capacities. This is how the Godrej group is gaining from contract manufacturing in India. It is producing soaps under contract for many multinationals including Dettol soap for Reckitt and Colman. This has significantly helped it in making use of its surplus soap producing capacity.
- The local producer also gets the chance to get involved with overseas business and gain incentives, if any, available to the export companies in case the overseas company wishes products so produced be transported to its home country or to some other countries abroad.