In today’s business world, selling simple off the shelf products from China is often not enough to be profitable – a strong brand needs unique products that fit the brand. Customising products to fit your brand or white-labelling items as your own can make production in China profitable. Brand customisation opportunities are abundant here. If you customise products in China, two key processes will be important to understand. These are OEM & ODM. Let’s explore the differences between OEM vs ODM and how they allow businesses to create unique products in China
OEM stands for Original Equipment Manufacturer. It refers to a factory that produces products designed and tailored specifically for the buyer.
What does OEM mean?
OEM means that a factory creates products according to the buyer’s requirements, including the buyer’s own design and functional requirements. The buyer can then sell these products under his own brand, keeping the ownership of the product design and trademark. This allows you to offer very uniquely designed products without having to handle the entire manufacturing process.
An example of OEM in the consumer electronics industry. A renowned headphone brand partners with an OEM manufacturer to produce premium headphones according to the brand’s specifications. These headphones are then marketed and sold under the brand’s name.
ODM stands for Original Design Manufacturer. It refers to a factory that creates and makes products based on its own designs but where cusomisation or branding options exist.
What does ODM mean?
But what is ODM? ODM, or Original Design Manufacturer, means that a factory sells products that can be customised or branded to meet the specific needs of the buyer. Personally, one of my biggest eye openers when coming to China was how easily factories just let you put whatever brand or logo on the products that they design and produce. As a buyer, you can purchase and sell many products in China under your own brand name. ODM allows you to bring unique and innovative products to the market under your brand name. This without having to do all the design and manufacturing work themselves.
An example of ODM in the toy industry. A toy company partners with an ODM manufacturer to produce a set of educational building blocks. The manufacturer uses its design and manufacturing skills to create these blocks. The toy company can sell them under its own brand.
What is the difference between OEM vs ODM?
The primary distinction between OEM vs ODM lies in their respective levels of involvement in the product design process.
OEM companies specialise in manufacturing products according to the specifications and designs provided by the client company, effectively functioning as a production partner. Customer involvement in the production is therefore high.
ODM companies use their own expertise to design and develop products, providing customisable options to the buyer. ODM, therefore, demands less effort from the buyer’s side, enabling them to place trust in the manufacturer’s design capabilities.
Both approaches allow you to introduce innovative products to the market without significant design investments. ODM products may be less unique compared to those manufactured through OEM using the client’s own design.
In what industries is OEM and ODM common in China?
Both OEM and ODM services are widely utilised across various industries in China. One prominent industry that relies heavily on OEM and ODM is consumer electronics. In this industry it’s often both about customisations in designs as well as functionality.
Additionally, industries such as fashion and clothing, furniture, toys and home appliances benefit from OEM and ODM arrangements to meet specific design requirements and cost-effectiveness. These days, basically every item found any webshop or store in Western countries have at least some kind of customisation or branding. Even a cheap houseware item in a discount shop or on Amazon has some brand logo printed on it.
The challenges and risks associated with OEM and ODM in China
Both OEM and ODM require strong cooperation between the buyer and the supplier. Therefore, if agreements are not clearly and honestly carried out, or if the manufacturer misses the capabilities that they pretend to have things could go wrong.
Some potential problems are:
1. Loss of intellectual property (IP): Working with Chinese manufacturers carries the risk of intellectual property theft of designs, products or technology. Business secrets may be stolen and used without permission. Implementing either legal or strategical IP protection measures is crucial when your secrets are at stake.
2. Quality issues: In some situations, Chinese manufacturers cut corners or use inferior materials or components to reduce costs. When the customisation project get more complicated, more processes could go wrong and the risks of problems and errors also increases. This may lead to defects, returns and damaged brand reputation. Proper quality contro for OEM or ODM products is even more crucial than for standard products.
3. Lack of expertise: Certain factories may face challenges due to insufficient technical expertise or lacking the necessary quality certifications required for complex product development and meeting rigorous standards. Understanding the supplier’s capabilities before starting a project is key here.
4. Project delays: Chinese factories often present overly optimistic timelines that fail to consider project complexities, such as the requirement for additional prototyping and testing. This can potentially lead to delays in delivery or product launch. Managing your projects proactively is important here.
When you are aware of these potential issues, it is important to find ways to tackle these challenges and mitigate risks. A capable Direct Factory sourcing agent can also help you to gain control over OEM or ODM processes.
Protect your intellectual property when producing OEM/ODM goods
Intellectual property (IP) protection is important when doing OEM and ODM projects in China, especially when sharing designs or technical details of products for a unique OEM project. OEM companies make goods based on your unique design, while ODM companies also get access to your brand logos and trademarks. As you may be aware of, stealing ideas, designs and technical plans is not uncommon in China, so you probably want to protect yourself against this.
The two major ways to protect IPs are legal protection and a more tactical approach. For bigger companies legal enforcement is a good way to protect your IPs. However, smaller companies initiating projects in China may need alternative strategies. You may be anxious about companies stealing your ideas and not having any power to do anything about it. In these cases using strategic and tactical measures may be more useful and effective to protect your idea.
Legal IP protection
Legal IP protection for OEM and ODM in China includes the registration of trademarks, patents, and trade secrets[1].
For trademarks, companies need to register and protect their brand names and logos. This stops others from using them without permission. Patents are important too. They give exclusive rights to inventors, preventing others from using their technology without permission.
Trade secrets are also important to protect. These are confidential business information or manufacturing techniques. Contracts and agreements are legal ways to protect your IPs. While China has improved its IP laws, challenges remain in enforcing them. When starting big OEM and ODM projects, you should understand the laws, get legal advice, and take extra measures like monitoring the market for counterfeits.
Tactical and strategic IP protection measures
In practice, using tactical and strategic solutions is often the most effective as these can prevent your ideas and secrets from being stolen in the first place.
Selectively share information, disclosing only what’s necessary, especially in the early stages of the cooperation. Many companies get deceived while simply sharing too much, too early. Everything that you don’t share, the factory can also not steal. Often, people share way too much and with way too many suppliers. Think about a situation when you share product details with a supplier that you later decide not to work with. What reason do they have to not make use of the information provided by you?
Split manufacturing is another tactic to consider. When split manufacturing, production is divided among different suppliers. This makes it way harder for the manufacturer to steal the complete design or technology. For example, when one factory delivers a special design frame and another factory delivers the upholstery, both of them are not totally aware of your product, so both will be unable to copy your product.
By building strong relationships and offering incentives like fair compensation and recognition, you encourage your production partner not to steal your IPs. If they earn more to not break their promises than to do so, they will probably not do it. Make sure you have your added brand value that the company cannot easily copy in your market. In that way, the supplier cannot really utilise the information they receive, even if they have it.
Implementing these approaches can be very effective measurements for IP protection in China.
Quality control in OEM and ODM manufacturing
Quality control for OEM and ODM orders from China requires additional care compared to regular purchases, as custom product development adds complexity. When a product is customized specifically for your brand, there are more opportunities for errors or inconsistencies to occur if quality is not properly managed.
Establish written standards and communicate them clearly with the factory, so the factory understands your quality requirements clearly. Then, conduct regular inspections at each stage of production, from material selection and component specifications to workmanship levels and packaging. This is especially important when producing a new item for the first time, because experience is still lacking.
Testing is also crucial. Require samples to undergo durability and reliability testing before mass production begins. Continue this testing during production inspections to ensure the products in the mass production follow the same standards as the samples.
Understand the processes that lead to your final product like component sourcing, production processes, packaging and documentation. Close communication and well-defined accountability help ensure problems are addressed proactively and keeps you in control as a buyer.
Choose a capable supplier and prevent delays in your OEM and ODM project
Picking the wrong factory or not managing your project carefully can waste your time and money. If you choose to work with a factory that isn’t equipped to meet your needs or fail to manage the process effectively, your project may not succeed. It could lead to severe delays or even total failure of the project. This means you spend money and time without getting what you want. So it’s important to choose carefully and lead the project the right way from the start.
To avoid a lack of expertise problem, carefully assess and select potential manufacturing partners to ensure they have the necessary technical skills and certifications. Choose experienced manufacturers that have enough production capabilities and experienced staff, even more so for OEM vs ODM projects. Conduct due diligence on-site to assess the technical capabilities of the manufacturer with your own eyes. Clear communication and providing detailed guidelines can further help bridge any knowledge gaps and improve collaboration.
To further prevent delays, manage your supplier proactively. Set realistic timelines and consider potential complexities during project planning. Regularly communicate and monitor progress to identify and address delays early. Stay adaptable and prepare for unexpected situations, negotiations and problem-solving. A cooperative relationship with your manufacturing partner can help to promptly solve issues and minimise project delays.
Ensure successful OEM and ODM projects
To have a successful partnership with OEM or ODM manufacturers in China, it’s important to understand the differences between OEM vs ODM. OEM lets you fully customise the product according to your specifications, while ODM uses the manufacturer’s design skills and your specific customisation or branding requirements.
Choosing and managing your OEM vs ODM path in China opens many doors for your businesses. Successful partnership with OEM/ODM manufacturers can create unique and high-quality products for your brand. You can bring innovative, customised products to the market without extensive in-house resources.
To understand how we can help you with your OEM or ODM project, check out our service overview or contact us today!
