Contract manufacturer

A manufacturing company is the supplier ( subcontractor ) a manufacturer. Even if the produced goods he goes directly to the dealer or end-user, he does not go towards them as a supplier to, but leaves it to the manufacturer or its distributor. Core competence of the production plant is the optimization of production processes, it is not concerned with the development and marketing. Quality assurance is carried out by the customer, the manufacturer at the place of operation.

Extended workbench

The metaphorical expression extended workbench, so the work on an imaginary bench pass on along until they from the same holding out, so on the market, enough is originally for industrial manufacturing processes ( or even entire economies ), which own research and run development, but only offer contract manufacturing of products that were from other companies (or in other economies ) developed.


This trend began in the seventies, when the ASEAN countries began to open up to the West and to attract foreign investors. In South America, there were these tendencies. With the onset of globalization, the opening of Eastern Europe to the West and the end of the controlled economy in India in the late 1980s and early 1990s, this trend spread further.

The extended workbench provides the investing company has several advantages:

  • Proximity to sources of raw materials
  • Low wage levels and ( in many countries) weak unions, lack of workers' rights (where partially the exploitation of child labor is accepted )
  • Direct support by a (often) corrupt political class
  • Access to domestic markets

For each country, are the benefits

  • Construction of the infrastructure
  • Training of skilled workers
  • Tax and customs revenue


Disadvantages and risks for the economy, however, are:

  • Unstable political systems
  • Exchange rate risks (see Asian crisis )
  • Unprofessional banks

The disadvantages for the following countries:

  • Growing dependence of the world economy and international financial flows
  • Growing environmental problems


Initially, especially areas of light industry were outsourced, requiring little technical personnel and lack of investment, it was followed by the heavy industry that requires more capital. With the growing level of education in the respective countries but outsourcing also includes white collar jobs and even research and development departments.

The effect of the "extended workbench" lose slowly and the former "workbench " countries grow full-fledged suppliers and even competitors. Meanwhile, the term extended workbench is also commonly used for subcontractors that provide standard activities or preparations for the actual supplier.

Reasons for this are, for example:

  • The actual supplier can flexibly adapt to a fluctuating capacity requirements.
  • Cost savings
  • Process-related reasons
  • Strategic Rationale

Example: A company offers a number of locations around the world to the repair and overhaul of turbines. Since the actual work that can perform complex repair processes, exists only once, there is for non-European customers alone, within the Group for national companies who take the turbines at the reception, disassemble, clean, and send for the actual overhaul in the repair shop. The company repaired speaks of the foreign subsidiaries as an extended workbench.

Contract manufacturer of branded goods

Contract manufacturers or contract manufacturers are industrial companies, products standard produce on behalf of and at the expense of branded goods manufacturers without contacting the buyer with as a manufacturer in appearance. The advantage is the lack of opportunity to give manufacturing companies an image of the anonymity of the producing company, the disadvantage. However, they are distinguished from the extended workbench, as this is defined as the outsourcing of certain upstream or downstream work on a product from the production.

The transfer of the production of branded products is of paramount importance for the computer industry ( original equipment manufacturer ), but also in many other industries, companies have specialized as a contract manufacturer, for example, in the pharmaceutical industry, the cosmetics industry and in the field of food production ( trademarks).

In the automotive industry, contract manufacturing is a cooperative type is used in several application scenarios. It is often spoken in this framework of contract manufacturing. A variant used for decades is the outsourcing of small series and low-volume derivatives. The production of the car manufacturers are usually designed for high volume. Low numbers therefore worthwhile rare. Order or contract pavers have been set, however, precisely this segment as a target. You take over the production of low-volume derivatives and special models (eg convertibles ). The other use case arises when entering new markets. Here, the producers hired a contract manufacturer in the target market with the assembly of the vehicles. Result, the tax burden can be considerably reduced and overcome trade barriers. However, such production co place high demands on processes and systems of the two partners, since significant information needs and votes are needed by the separation of the value chain between two companies.