When it comes to sourcing business, you may have heard much about terms like ODM and OEM. Yet you are still a bit confused by these terms and find it difficult to choose a suitable manufacturing partner for your outsourcing process in Vietnam. For that reason, this blog article will cover definitions of these terms and partly help you make decisions on which is the best option for your business in Vietnam.
Check out the main points here before jump into this blog article:
1. Outsourcing to Vietnam
In recent years, due to a number of reasons, many businesses all over the world have decided to move their operations out of China to Southeast Asia countries, especially to Vietnam which could be considered as the rising star of Southeast Asia region.
In fact, in the period of ten years from 2010 to 2019, Vietnam attracted USD 143 billion in cumulative FDI. Of this, 59 percent went into manufacturing – especially in the electronics, textiles, footwear, and automobile parts industries – as many companies shifted supply chains to Vietnam, according to a report of the U.S Department of State.
When sourcing to Vietnam , ODM and OEM are the two manufacturing types that are mentioned and considered the most. Both these terms refer to outsourcing the production of certain products/components to Vietnamese contract manufacturers. Read the sectors below to have a clear understanding of these terms.
2. What is ODM?
ODM, which stands for Original Design Manufacturing, is a type of manufacturing in which the manufacturer will research product designs, specifications and manufacture based on the product idea brief provided by the client. In most cases, ODMs also manufacture products they design and these products will then be branded in the client companies name and sold on in the market.
This type of manufacturing is also referred to as Private Labeling. With an ODM company, importers do not need to invest millions of dollars in research and development to create a completely new product since the ODM takes care of these stages, product concepts, testing and manufacturing as well.
3. What is OEM?
OEM, which stands for Original Equipment Manufacturing, is a manufacturing type in which you have spent millions of dollars in R&D to possess a unique product design and then contracted a number of third-party manufacturers to handle the mass production. The contracted suppliers will manufacture products based on the provided product design and specifications.
Apple is a good example for this manufacturing type. In fact, this technology giant came up with the idea, designed their own products and then licensed their scratch out to Foxconn for the manufacturing process.
4. Pros vs Cons
As an old saying goes, every coin has two sides. This means that despite advantages each manufacturing type brings to the importers, they still have some disadvantages. And by considering them both, buyers can choose the right one for their sourcing business.
With ODM, not only do you not have to spend time and resources designing the product, but you can also take advantage of the economies of scale from an ODM firm. This means that they could save a lot of money and spend more resources on their core operations as well as marketing strategies like developing brands, testing customers’ responses or marketing products. Besides, minimum order quantity (MOQ) requirements for this type of production will be lower than that for OEM since there are less set-up costs.
Despite advantages above, this manufacturing type still has downsides which should be considered. First, you will not receive a unique product, which means it will be hard to differentiate your product from the rest of goods in the market, and accordingly there could be another competition in price and margins. Second, the intellectual property of the product is owned by the supplier or another company and you have to carefully consider whether your partner is violating the IP of someone else.
In contrast to ODM, before licensing to the third-party manufacturers for mass production, the buyers have spent millions of dollars and a great deal of time on doing all the market research, stage of R&D and developing its own product. Accordingly, this product will be unique when it is launched to markets, making it more attractive in the markets compared to other ones.
However, a huge downside of this type is that the cost of OEM products is very expensive. Furthermore, it takes a longer time to launch products to the market, compared to the period of time the ODM takes. Additionally, since the set-up costs for these products to be properly manufactured are high, the MOQ is also higher compared to that of ODM.
Check out the summary table below:
As each one has its own pros and cons, choosing between the two depends much on the type of products you want to sell, the resources you have and are willing to invest as well as the budget on hand. With the pros and cons for each manufacturing type presented above, you might have your own decision for your outsourcing business.
Viego Global – Your trusted sourcing partner in Vietnam
Are you going to source from Vietnam, an Asia sourcing hub with great potential. Are you faced with any problems when sourcing Vietnam? With professional experience and presence at manufacturing locations and economic centres, Viego thoroughly understands and has the capability to help you break through all the barriers as well as successfully do business in this country. Just leave your comment below or click HERE for further support!