Contract manufacturing refers to a kind of international business where a company get certain components or goods produced as per its specifications by entering into a contract with one or a few local manufacturers in foreign countries. There are three major forms of Contract manufacturing, also known as outsourcing:
- Manufacture of certain components/parts including automobile components or shoe uppers that are used later for producing final products such as cars and shoes;
- Assembly of components into final products such as assembly of hard disk, floppy disk, mother board, drive and modem chip into computers; and
- Complete production of the products such as garments and textiles. These goods are manufactured or assembled as per the technology and management guidance provided to them by the foreign company. The goods thus produced or assembled by the local producers are delivered to the international company for use in its final products or out rightly sold as finished products by the overseas company under its brand names in different countries including the home, host and other countries. Today the developing countries under contract manufacturing manufacture products or components for all the major international companies such as Nike, Reebok, Levis and Wrangler.