With many companies scrambling today to become more competitive on a global level and meet consumer demands for lower prices, many of the methods for reaching global markets and joint ventures with foreign firms are looking more and more attractive. One of the options available to product manufacturers is contract manufacturing with foreign producers. Much like licensing, contract manufacturing involves a foreign company that produces goods for another company. However, where licensing involves the manufacturer using the company’s trademark or brand name under license and the sale of consulting services on the part of the licensor, contract manufacturing involves a company that already produces a private-label product and another company attaching their brand name or trademark.
In contract manufacturing, the manufacturer has no rights to the trademark. Contract manufacturing is often a form of offshore outsourcing where a company produces a product for a specific brand. Examples of this can be seen in a number of large US corporations. Singapore contract manufacturers often produce cell phones and other electronics for a number of US brands, and China is a leading contract manufacturer for US computers and laptops like Dell.
The benefits of contract manufacturing for startup companies or smaller businesses can be great, as contract manufacturing often allows these companies to experiment with different product variations in different markets without having hefty production costs associated with a local manufacturing facility. In addition, for established companies, production of successful products can easily be expanded to meet new demands without incurring additional costs and overhead.
Aside from contract manufacturing, forming international joint ventures and strategic alliances are also great ways to expand into the global market. However, these type of joint ventures have traditionally been used more by larger corporations. A joint venture is a type of arrangement where two companies join together for a particular project. Examples of this are often seen in the motor industry where American car companies enter into a joint venture with Asian car manufacturers in order to produce vehicles for all markets. The two companies, which are often from two separate countries, share technology and risks associated with the project, along with marketing and management skills.
The advantage of these kinds of ventures is that many companies who would not otherwise be able to enter some markets are able to work together with local companies that have access to those markets. A strategic alliance is much of the same thing, tying together two or more companies with a common goal. However, in a strategic alliance, companies typically do not share costs, management, or profits. While these kinds of arrangements can be beneficial at reaching other markets, the disadvantages are much like in a licensing agreement, where one company can take the other companies technology and expertise, leave the arrangement, and use the ideas to promote their own company or profits.