Entrepreneurship Development and Communication Skills

7.4.2.Sub-contracting

Sub contracting refers to a mutually beneficial commercial relationship between two companies. It is also called as ancillarisation. In sub-contracting, contractor places order with sub-contractor for the production of parts, components, assemblies or sub-assembiles to be incorporated into a product sold by the contractor. Sub-contractee produces accordingly and supplies the same. In large-scale industries, sub-contracting is common because they do not produce all goods on their own.

Sub-contracting is of two types such as: 1. Industrial sub-contracting, and 2. Commercial sub-contracting. Sub-contractors normally work for more than one contractor.

The birthplace of model sub-contracting system is Japan. Sub-contracting system has become basic to the character of Japanese industries. About 60% of the small manufacturing industries are producing under sub-contracting system. In our country, they are called as ancillary units.