"In a contract manufacturing business model, the hiring firm approaches the
contract manufacturer with a design or formula. The
contract manufacturer will quote the parts based on processes, labor, tooling, and material costs. Typically a hiring firm will request quotes from multiple CMs. After the bidding process is complete, the hiring firm will select a source, and then, for the agreed-upon price, the CM acts as the hiring firm's factory, producing and shipping units of the design on behalf of the hiring firm..
[…]
In an international context, establishing a foreign subsidiary as a
contract manufacturer can have favorable tax benefits for the parent company, allowing them to reduce overall tax liabilities and increase profits, depending upon the activities of the
contract manufacturer."
(Wikipedia,
Contract Manufacturer, visited 2010-09-25)