Contract manufacturing involves entering into a contract with local manufacturers in foreign countries to get goods produced as per the firm's specifications. In contrast, setting up a wholly owned subsidiary involves establishing a new firm or acquiring an existing one in a foreign country where the parent company owns 100 per cent equity.

Regarding control, a wholly owned subsidiary allows the parent firm to exercise full control over operations and keep trade secrets secure. In contract manufacturing, however, local firms might not adhere to quality standards, and the local manufacturer loses control over the manufacturing process.

Financially, a wholly owned subsidiary requires the parent company to make 100 per cent equity investments and bear the entire losses alone. This makes it unsuitable for small and medium firms, whereas contract manufacturing does not require such heavy capital investment abroad.