Case study of subcontracting system in motorcycle, diesel engine for agriculture and refrigerator

This study was conducted to investigate the extent, nature and effect of subcontracting. The survey of 43 firms in motorcycle, diesel engine for agriculture and refrigerator industries was carried out and the data were collected by direct interview. When extent of subcontracting was investigated, all assemblers were contractors because of limited domestic market, the variety of raw material orientation and the large number of component parts. Cost saving and specialized requirements were the obvious motivation of contractors whereas stabilization of transaction and assured payment were the main motivations of subcontractors. From the nature of subcontracting part of view. Most subcontractings were based on open-ended signed contracts and contributed regular order with payment within 60 days after delivery. Linkages formation in term of price and technical was found commonly. In general, subcontractors depended on contractors more than contractors depended on subcontractors. The relationships were international industial subcontractings which formed specialized relationships at most. With the nature of subcontracting and technology diffusion in various forms, particularly advices on production and quality control, the subcontractings impacted on productivity of subcontractors positively. The subcontractings with well-known firms and equipment linkages also contributed positive effect on finance of subcontrators. The obstacles of subcontracting, from contractors' point of view, were the unreliable ability of subcontrators in term of quality and delivery. From subcontractors'point of view, overly strict quality inspection was the main difficulty. However, the obvious obstacles for further development of subcontracting is the present system of multiple business taxation. The present government policy to reduce this obstacle is Original Equipment Manufacturing Taxation. Subcontracting could help development of small-medium firms at some extent as envisaged in the Fifth National Economic and Social Development Plan of Thailand.