Contract manufacturing
Topic: Industrial Policy, Public Sector, MSMEs and Disinvestment · NCERT: Beyond NCERT
Meaning
Contract manufacturing is when a company outsources production of its products to another manufacturer. That manufacturer builds them to the company's own design and specifications. The brand owner focuses on design, marketing and sales, and the contract maker focuses on large-scale, efficient production. For India, this is a quick way to join global value chains, the production networks spread across countries. It creates factory jobs, especially in electronics.
Example
Under the production-linked incentive (PLI) scheme, launched in 2020-21, Foxconn and Tata Electronics make iPhones in India for Apple. Apple owns the design and the brand. The Indian plants do the manufacturing. This is the area where PLI has worked best.
Don't confuse with
- Ancillary unit: An ancillary unit is a small firm that supplies parts or services mainly to one large parent firm. A contract manufacturer makes the finished product for a brand.
Related concepts
- Labour-intensive industrialisation
- Production-linked incentive
- Phased manufacturing programme
- Design-linked incentive
- Special economic zone
- Export processing zone
- Export-oriented unit
- Eight core industries