I. The difference between OEM and ODM.

For better understanding, let's take an example to illustrate the difference between OEM and ODM.

OEM stands for Original Equipment Manufacturer, where the manufacturer itself has no intellectual property rights or design rights to the products it produces. All the core technology comes from the sourcing party and the manufacturer is only responsible for OEM processing. For example, there is a very powerful purchaser of electrical appliances, A, who has his own design and R&D team and has designed many highly sophisticated products. But if all these products need to be manufactured by A's own factory, then this labor and time cost would be too high. In order to have more time to devote to R&D and marketing, A came to China and looked for manufacturer B. The quality of B's manufacturing met A's requirements in all aspects, so A then licenses to B the core technology of the appliance he has designed, the packaging design and so on a series of product related technologies including branding. Manufacturer B only needs to keep his head down and follow purchaser A's design to complete production properly and ensure product quality and delivery.

ODM stands for Original Design Manufacturer, a category where the manufacturer has its own design and R&D capabilities, and the purchaser only provides brand licensing. This situation is mostly seen in larger manufacturers who have their own R&D and technical teams. In the same example of purchaser, A, who visited manufacturer B's stand at the Canton Fair, found that B's product design was very much in line with the aesthetics of his market and learnt through conversation that manufacturer B had his own R&D and technical team with 25 years' experience in the electrical appliance sector. Buyer A, on the other hand, needed to put more effort into marketing and market research because of the competitive market, so Buyer A chose Manufacturer B's product design and eventually affixed its own brand. Manufacturer B is by this time not just purely processing products, but also investing in research and development.

From the above example, we can easily understand that ODM is in fact an advanced version of OEM, where the manufacturer is a simple OEM and does not have R&D. The ODM manufacturer invests in R&D and technology, but only uses the purchaser's brand at the end, which is often referred to as OEM production.

II. Advantages of OEM and ODM.

OEM and ODM manufacturers each have their own advantages. Overall, the 2 types of manufacturers help buyers to solve the problem of high labor management costs in their own countries, allowing buyers to have more time to focus on marketing.

OEM simply means processing, where the manufacturer only pays for labor, and this gives a good indication of the advantages.

• The core technology and design solutions are owned by the purchaser and can be better adapted to market needs.

• Savings in labor costs and the time costs associated with running a manufacturing plant.

• The purchaser has more energy to devote to technology development and marketing.

ODM simply means brand-allowance production, where the manufacturer pays for both labor and technology and the product is eventually branded with the purchaser's brand.

ODM is more technical than the OEM manufacturer, whose advantages are mainly reflected in below:

• The ability to provide product development support to the purchaser.

• The purchaser can save on labor costs, time spent running the factory and product development costs.

• For buyers who want to open up the market in the manufacturer's country, it increases brand awareness and reduces investment risk.

III. Issues to note under OEM and ODM trade.

Now OEM and ODM are widely used at present, but there are still many uncertainties, easy to bring risks which buyers need to pay special attention.

1. Regardless of the trade method, the manufacturer's qualification and production capacity need to be fully understood.

The most reliable way is to visit the manufacturer's factory directly. However, with the globalization of the epidemic currently unchecked, direct trade visits can be costly in terms of time and expense. The buyer can visit the manufacturer's independent website or social media platforms such as LinkedIn, Facebook and ins in the early stages to get to know them in many ways. Once a certain level of trust has been established, a video conference can be held between the two parties to discuss the details of the cooperation. Alternatively, a reliable representative can be found in the manufacturer's country of origin to visit the factory on the buyer's behalf, so that he or she has an understanding of all aspects of the factory's reality.

2. Standardized specifications for products need to be explicitly listed in legal provisions in the contract or in an annex to the contract to prevent unnecessary conflicts and disputes over final quality.

Because of simple labor substitution, profits are often the lowest in a market where manufacturers are highly competitive. This leads some manufacturers to cut corners on some parts in order to expand their profits. Although the quality of the product is not affected in the short term, the complaint rate of the product will rise in the later stages, which is not conducive to the promotion of brand credibility.

3. Brand protection.

Many manufacturers will also have the idea of developing branding, but for various reasons this has not been achieved. Under the OEM and ODM approach, there is a danger of manufacturers exporting their OEM or labeled products to their home market for additional brand profits. Or the technology and design of the OEM product is leaked. These can be detrimental to the brand image of the purchaser. This needs to be highlighted to the manufacturer in particular and is stated in the law.

Through the above introduction, I believe that all buyers and friends have a deep understanding of OEM and ODM trade methods. If you are looking for OEM or ODM manufacturers, welcome to consult us to give relevant advice and solutions.