When Your Contract Manufacturer Becomes Your Competitor

Abstract

The increasing outsourcing of production stems from technological changes that foster specialization through the use of robots and flexible factories, and reduce coordination costs by applying new standards and using the Internet. Besides eliminating barriers to entry, this “contract manufacturing” encourages homogeneous diversification and mitigates differentiation built upon “zero defects” strategies and product range. Firms in the industrial sector thus tend to specialize in manufacturing for other companies or in designing, researching and selling their products.

Keywords: contract manufacturing, outsourcing, transaction costs, strategy

JEL Classification: M11, M21, L14, L22, L62