There is almost no day passing without any news about mergers, acquisitions or cooperations between two or more companies. In most cases, one of the major motivations is the recognition of cost reduction potentials to stabilize profits. Daimler-Benz and Chrysler, since early 1999 known as DaimlerChrysler, merged their R & D and sourcing activities to achieve economies of scale. But for what reason do they have to stabilize profits? Because they live in a world of decreasing margins and stagnating sales. It is evident that despite their high volumes the markets of the industrialized countries are almost satisfied and lack appreciable growth rates. Product life cycles (PLCs) become gradually shorter, reducing the profit periods of products. Moreover, these markets are mostly dominated by a destructive price competition so that often companies are forced to offer at almost dumping prices in order to survive. The big German mineral oil enterprises recently claimed that the introduction of Dea′s payback card to bind their customers via a one-pfennig (!) patronage refund per consumed liter had been, in their opinion, responsible for a follow-up ruinous price "battle". At the same time, they were all fighting together against the private brands. Shortly afterwards, it was the food trade battling, which had been instigated by Wal Mart′s dumping-price policy with basic foodstuff. And this development will continue.
Therefore, companies more and more initiate activities to conquer foreign markets, with many of them evading to less developed countries. This apparent contradiction turns out to be a logical step of enlarging upon business activities because many of these countries are on the threshold of becoming industrialized and consequently, they reveal huge potentials of unsatisfied demands, which, up to that point, remained unattended. Hence, even small and medium-sized enterprises turn "international", seeking advantages in distribution and sourcing as well.
Table of Contents
1. Introduction
1.1 Internationalization as a Surviving Strategy
1.2 Problems with Internationalization
2. Conceptualization of Contract Manufacturing
2.1 Contract Manufacturing as a Foreign Production Strategy
2.2 Types of Contract Manufacturing
2.3 Benefits and Advantages against other Strategies
2.3.1 Evading Financial, Political and Legal Barriers
2.3.2 Gaining Advantages in Sourcing and Customer Orientation
2.4 Risks and Disadvantages against other Strategies
2.5 Recommendations of Strategy Choice
3. Implementation in Industrial Goods Markets
3.1 Finding and Selecting the Right Manufacturers
3.2 Structuring a Contract
3.3 Realizing a Supply Chain Management
3.4 Controlling of Contract Manufacturing
Objectives and Topics
This work examines contract manufacturing as a strategic tool for foreign market entry within industrial goods markets, aiming to provide a conceptual framework and implementation guidelines for companies. The central research question explores how firms can leverage contract manufacturing to overcome internationalization barriers while managing the inherent risks and interdependencies associated with outsourcing production.
- Strategic conceptualization of contract manufacturing as an alternative to direct investment.
- Evaluation of financial, political, and legal risk mitigation through outsourcing.
- Implementation processes, including manufacturer selection and contract structuring.
- Optimization of supply chain management and controlling in an international context.
Excerpt from the Book
Contract Manufacturing as a Foreign Production Strategy
After the selection and examination of the new market, a company being about to go international has to opt for a market entry strategy considering capital investment, risks, outsourcing of production, distribution and / or after-sales service and therefore proximity to its customers, market coverage, possible profits and control over the strategy.
On the one hand, the company may select an exporting strategy, i.e. the goods will be produced in the domestic factory and afterwards forwarded to the foreign country. On the other hand, it has the possibility of choosing a foreign production strategy, either with or without direct investment (cf. illustration 1 on p. 3).
Contract manufacturing – as one possible strategy – can be defined as follows: ‘a cooperation on a contractual basis between a company (called original equipment manufacturer = OEM) and an independent manufacturer (contract manufacturer) who is transferred the know-how to take over certain steps or the entire production of goods’.
It is now evident that contract manufacturing is about outsourcing manufacturing processes, where the OEM acts as a demander to the manufacturer. But this general description is still far from being a strategy, especially one of foreign market entry. Indeed, the initial idea behind contract manufacturing has been to achieve production cost advantages by shifting to specialists all those manufacturing processes that do not belong to the key capabilities.
Summary of Chapters
1. Introduction: Discusses the necessity of internationalization as a survival strategy due to global competition and explores the multifaceted problems companies encounter when entering foreign markets.
2. Conceptualization of Contract Manufacturing: Defines contract manufacturing, categorizes its types, and analyzes its strategic benefits, risks, and selection criteria compared to other market entry modes.
3. Implementation in Industrial Goods Markets: Focuses on the practical application of contract manufacturing, covering partner selection, contractual agreements, supply chain integration, and the role of controlling.
Keywords
Contract Manufacturing, Foreign Market Entry, Industrial Goods, Outsourcing, Supply Chain Management, Original Equipment Manufacturer (OEM), Internationalization, Cost Reduction, Risk Management, Global Sourcing, Strategic Management, Controlling.
Frequently Asked Questions
What is the core focus of this research?
The work focuses on how companies can use contract manufacturing as a strategic entry vehicle for foreign industrial goods markets without engaging in direct capital investment.
What are the primary thematic areas covered?
The study covers the strategic rationale for contract manufacturing, the benefits of evading market barriers, the practical challenges of implementation, and the necessity of managing dependencies through supply chain management.
What is the primary goal of the author?
The goal is to provide a comprehensive framework that helps managers evaluate whether contract manufacturing is the optimal strategy based on specific market criteria, risks, and cost-benefit considerations.
Which methodology is utilized in this paper?
The paper utilizes a structured analytical approach, combining theoretical concepts of international marketing and sourcing with practical implementation guidelines and a comparative strategy checklist.
What topics are discussed in the main body?
The main body treats the conceptual definition of contract manufacturing, the advantages and risks versus other strategies, the process of finding and selecting manufacturers, structuring contracts, SCM integration, and controlling.
What characterize this work?
It is characterized by its focus on "contract manufacturing," "foreign production," and the specific interdependence between the OEM and the contract manufacturer in industrial markets.
How does the author propose to manage the dependency on a contract manufacturer?
The author emphasizes the use of stringent contract terms, penalty clauses, quality standards, and the integration of the manufacturer into the firm’s supply chain management to maintain transparency and performance.
Why is the controlling of contract manufacturing emphasized?
Controlling is emphasized because unlike direct investment, contract manufacturing involves external partners; therefore, it requires rigorous cost analysis and monitoring to ensure that long-term strategic goals are met without losing competitive advantages.
- Quote paper
- Reinhard Nickel (Author), 2000, Contract Manufacturing - Foreign Market Entry via Contract Manufacturing - Conceptualization and Implementation in Industrial Goods Markets, Munich, GRIN Verlag, https://www.grin.com/document/2528
