A few weeks ago, I read THE MAN WHO FOUND THE MONEY about John Stewart Kennedy, the investment banker for many railroads in the 19th century, including J. J. Hill’s lines. Kennedy startted out as a contract supplier to the construction camps. Henry Ford worked (twice) for Thomas Edison. Silicon Valley saw Shockley spawn the “Fairchildren.”

Contract manufacturing means that consumer goods and services can be formulated to meet a market perceived by a designer. This frees the marketer, minimizing capital requirements and widening the latitudes of flexibility in product or service.

This works well for USB thumb drives and call center support. You cannot contract for the routine production of something that never existed before.

While the leading edge always belongs to innovation, more profits may be destined for early adopters or routine followers. Thus, we all benefit from increased choices at prices we prefer.

Comparative advantage and division of labor suggest that the contract manufacturer who launches their own label will be rare, and therefore interesting to study.

On the other hand, do professors mind when students — especially former assistants — become professors, competing against them? The new prof teaches Intro 101 until they can capitalize on their specialties, launching their own brand after learning production.

Mike M.
“Cow with Bay Leaves”

But suppose a design and marketing outfit can go to any one of a number of producers with excess capacity to make its stuff and still get the same cost and quality performance. Then you shouldn’t expect to earn a high return on a manufacturing investment even if you also start producing your own brands.