The terms “OEM” and “ODM” as commonly used in manufacturing industry you’ve probably heard a lot about it, and chances are, maybe you’re now researching for some OEM and ODM products. Understanding the difference between OEM products and ODM products is a vital step for successful importing from China.
OEM, abbreviation for Original Equipment Manufacturing, refers to products that are designed by one company and then outsource the manufacturing to another company. An easy to understand example is Apple, all the products are fully invented and designed by Apple, then outsource the assembly to Foxconn. As the designs are only exclusive to Apple and its sub-contractor, the products of Apple enjoy a higher level of uniqueness. Examples of OEM products are customized clothes, shoes, electronics, appliances, etc with custom logo by China private label manufacturer.
The greatest advantage of OEM products is there’s no limitation to the designer’s imagination while ODM products are subject to predetermined design.
ODM, stands for Original Design Manufacturing, refers to products that importers make small changes based on existing designs from the factory and sell under their brand names. It’s also referred to as private labeling. Predetermined designs are usually kept while small changes are made like changing components, adding extra functions, changing colors, packaging, brand name, etc. An easy to associate example of ODM is just like building a website from the templates, importers choose templates from ODM manufacturers and customize based on their needs.
The greatest advantage of ODM products is it saves importers lots of costs in product research and development to create something from scratch. By reducing the expenses of product developments, importers can focus more on product variety and marketing strategies. Why restart everything from scratch when you can optimize based on existing templates?
A downside of ODM products is that they might not have higher level of uniqueness from your competitors’ as all are produced based on the same templates. Regardless of the fact that less startup capital is required in ODM products, the price competition tends to be so fierce that it would result into small profit margin. For example, consumers tend to be more cost/ratings/reviews sensitive among an extensive range of products that are only different in colors, packaging or brand names.
OEM or ODM?
Many factors come into play as to whether you should go with a Chinese OEM manufacturer or ODM manufacturer, e.g., the amount of startup capital, R&D team, order quantity, etc. For startups, small to medium business, Amazon FBA sellers, ODM is usually the common path to accumulate more startup capitals and experience to get it off the ground.