Final answer:
Contract manufacturing is a business model where a company contracts with manufacturers in a foreign market to produce its product or provide its service. This approach is part of international trade and allows for economies of scale and access to specialized manufacturing skills.
Step-by-step explanation:
Contract manufacturing is a business model in which a company contracts with manufacturers in a foreign market to produce its product or provide its service. It is a form of international trade that allows businesses to take advantage of economies of scale and competitive production costs, without having to set up their own manufacturing facilities abroad.
By outsourcing production, companies can focus on their core competencies, such as design and research, while leveraging the manufacturing skills and capabilites of partners in other countries.
For example, large automobile factories in various countries may specialize in different aspects of the production process. In a scenario where countries like the United States, Japan, or Germany all produce types of machinery based on the unique skills developed by their firms, international trade becomes crucial for both acquiring specialized machinery and selling different varieties that other countries may demand due to which contract manufacturing emerges as a vital component of global assembly lines and international business strategies.
Companies such as Apple utilize contract manufacturing by designing products in the United States but assembling them in nations like Malaysia, taking advantage of lower production costs and skilled labor. In addition, outsourcing and offshoring are practices closely related to contract manufacturing, which involve moving certain operations or jobs to other countries to reduce expenses and streamline operations.