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

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Solution

Basis of difference

Contract manufacturing

Wholly owned production subsidiary

Meaning

A firm hires a local manufacturer in another country on a contractual basis to produce goods as per its requirements.

The parent company buys equity in a firm in another country and acquires full control over it.

Control

The firm has limited control over the local manufacturer.

The parent company has full control over its operations in another country through the subsidiary.

Investment

Negligible investment is made abroad.

The parent company buys up the entire equity of the firm abroad and makes this firm its subsidiary.

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Similar questions

In what ways is exporting a better way of entering into international markets than setting up wholly owned subsidiaries abroad?

Q. SIDBI is set up in ____ as a wholly owned subsidiary of ______.

Which one of the following modes of entry permits greatest degree of control over overseas operations?

(a) Licensing/franchising

(b) Wholly owned subsidiary

(d) Joint venture

In what ways are exporting/importing better than setting up wholly owned subsideries abroad?

One of the ways of establishing a wholly owned subsidiary is acquiring an established firm in the foreign country and using that firm to manufacture or promote its products. In March 2008, Tata Motors acquired Jaguar Land Rover, making it a wholly owned subsidiary of Tata.

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Basis of difference	Contract manufacturing	Wholly owned production subsidiary
Meaning	A firm hires a local manufacturer in another country on a contractual basis to produce goods as per its requirements.	The parent company buys equity in a firm in another country and acquires full control over it.
Control	The firm has limited control over the local manufacturer.	The parent company has full control over its operations in another country through the subsidiary.
Investment	Negligible investment is made abroad.	The parent company buys up the entire equity of the firm abroad and makes this firm its subsidiary.