Nike provides technical specifications to a subcontractor or local manufacturer for its products. What is this arrangement called and what are its major benefits and drawbacks?

Question

What will be an ideal response?

Answer 1

This type of arrangement is referred to as "contract manufacturing." Nike, for example, provides technical specifications of products to be manufactured to the subcontractor, who then oversees production. The licensing firm can specialize in product design and marketing, while transferring responsibility for ownership of manufacturing facilities to contractors and subcontractors. Other advantages include limited commitment of financial and managerial resources and quick entry into target countries. This is especially helpful when the target market is too small to justify full- scale investment. Also, there is the possible advantage of securing labor and resources at less cost than in the licensor's home country or manufacturing plant. One disadvantage would be that the licensed companies may become subject to public scrutiny and criticism for several reasons. Nike has to face this problem if workers in the contracted companies are underpaid. Inhumane working conditions and hiring underage workers have also been points of criticism by many governmental and private organizations. Violations of sustainable business practices have also come under scrutiny.