Social Scientist. v 17, no. 198-99 (Nov-Dec 1989) p. 49.

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Demystification of International Subcontracting

This review-paper is an exploratory attempt at identifying the factors governing the growth and retardation of international subcontracting of industrial production; in the process it also becomes a critique of the absolute generalisation of the munificent beneficence of international subcontracting by way of output expansion, employment generation, entrepreneurial development, technology transfer, skill promotion, growth of backward linkages, etc., in the less developed countries (LDCs).


In general, there is no problem in treating international subcontracting as 'all exporting sales of articles, which are ordered in advance, and where the giver of the order arranges the marketing.11 However, while UNIDO, OECD, UNCTAD and several writers recognise transnational intra-firm trade as based on international subcontracting,2 some writers treat sales by transnational subsidiaries to their parent firms as transactions within transnational corporations vertically integrated on an international scale and sales to transnational subsidiaries by local firms within a national frontier as representing international subcontract-arrangements.3 The definitional problem boils down to the point that those who emphasise legal autonomy of the taker of the order fail to recognise that it does not necessarily mean techno-economic-managerial autonomy. As such the legal-criterion fails to explain the real meaning of the contractual relationship between firms.

The parent firms in international subcontracting are transnational firms, especially of American, West European and Japanese origins, a growing number of which are trading companies.4 The subcontractors could be foreign 'workshop subsidiaries* (that completely export to the parent firm), foreign 'relay subsidiaries' (that export and/or sell in the country in which they are located), joint ventures, independent foreign enterprises in LDCs, and independent LDC-firms. The point, however, is that the actual circuitry of relationships between parent firms and subcontractors in international subcontracting has not been easy to grasp.5

* Department of Economics, Shri Ram College of Commerce, University of Delhi/ Delhi.

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