Sub-contracting

Done by : Brahim MANSOURI Lahcen LKHOLTI Noureddine LABIHI

Work surface
Introduction
Types of sub-contracting Advantages of subcontracting Disadvantages of subcontracting Advantages of Sub-contracting to the Economy Summary of difficulties in Sub-contracting

Introduction
Sub-contracting relationship between and among enterprises of various types and sizes are feature of modern economy

Types of sub-contracting
There are several forms or types of sub-contracting arrangements, including the following:
full capacity sub-contracting, where due to insufficient capacity in the principals firm a percentage of total output is regularly sub-contracted

special sub-contracting, where sub-contractors manufacture and

supply parts or components on a more or less permanent basis, including the use of specialized machinery or equipment or techniques

marginal sub-contracting, where infrequent or small orders are passed

on to sub-contractors

Types of sub-contracting
cost-saving sub-contracting, where costs of production of sub-contracted items are much lower in

sub-contractor firms because of lower overheads, lower taxes and lower expenses in wages and other payments to labor capacity sub-contracting, this arises from a temporary factory overload on account of a sudden increase in market demand, bad production scheduling, machine breakdown and other fatalities

Advantages of subcontracting
The major advantages of subcontracting include the following: As subcontracting links smaller enterprises, which relatively provide higher employment ratios than their larger counterparts, better corresponds to the proper endowment in most developing countries.
Enables greater flexibility of production and adjusting easily to changing demand patterns.

Advantages of subcontracting
allows better supervision of the production process and greater efficiency in the use of plant and machinery. subcontracting can help mobilize, generate and develop local entrepreneurship. subcontracting could provide an important channel for transfer of technology and know-how.

Disadvantages of subcontracting
There are certain disadvantages associated with sub-contracting . These include:
contractor preserves a high degree of control over the production process of sub-contractor
the sub-contracted production can be controlled by fixing standards for inputs and equipment used. When dealing with small producers, input and equipment are often provided by the contractor,

Disadvantages of subcontracting
Offering advance payment for production and/or credit for buying special machinery and equipment also exerts further control.

Advantages of Sub-contracting to the Economy

If done properly, sub-contracting can accelerate industrial

development. It will also broaden the industrial base and is one of the ways of ensuring that scarce resources are efficiently utilized.
Sub-contracting may also help in import substitution

industrialization when local manufacturers take on production of various parts and components, which were previously imported. In this way sub-contracting will also be helping to preserve scarce foreign exchange and improve the balance of payments position.

Advantages of Sub-contracting to the Economy

Sub-contracting will also assist to a certain extent in

decentralization of industry because sub-contracting orders will be placed with small companies, which may be far from the location of the large industries in the towns.
Lastly, but still important is the cooperative spirit

generated by subcontracting as it will create good will for the large companies and multinationals which may have hitherto been looked upon with suspicion by the locals. The creation of these linkages is essential between various sectors of the industry.

Summary of difficulties in Sub-contracting

Experience shows that there are several factors hindering the promotion of sub-contracting . These include: lack of information on the available capacities and capabilities. small size of the market lack of mutual trust between large and small companies the absence of an institution in sub-contracting which is able to link the small scale industries with large scale industries

Summary of difficulties in Sub-contracting

efforts to have foreign firms do give sub-contracts to local manufacturers have not always succeeded because of fears that there would be no guarantee in quality of the items produced. some sub-contractors may take advantage of their local monopoly situation to pay low wages to their workers who have no alternative employment