Photo of Sharada Ramachandra

Principal associate in the General Corporate Practice at the Bangalore office of Cyril Amarchand Mangaldas. Sharada advises on private equity and strategic foreign investment, corporate restructuring and general corporate advisory matters. She can be reached at sharada.ramachandra@cyrilshroff.com

Contract Manufacturing - Press Note 4

The question of whether contract manufacturing constitutes “manufacture” from a foreign investment perspective is an oft debated topic in the manufacturing fraternity and many businesses have struggled with this issue for years.

“Contract manufacturing” refers to manufacturing undertaken through a third party and has a range of benefits for the principal manufacturer, including economic efficiency, scale, operational efficiencies and flexibility. For instance, if a specialised set of equipment or skills is required to manufacture a certain product, the principal manufacturer can use the facilities already available with a third party to manufacture these products, instead of investing its capital in creating these facilities for itself. Contract manufacturing also enables a principal manufacturer to utilise a contract manufacturer’s existing supply chains, linkages and labour force. If a principal manufacture has a cyclical manufacturing business, using the facilities of a third party may be more beneficial than making capital investments that may lie idle for large parts of the year. In light of these benefits, contract manufacturing as a business model is one that is preferred by many entities in the manufacturing business.
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