DISTINGUISHING OEM, ODM, OBM IN INDUSTRIAL PRODUCTION

by Admin

26/03/2024

Documentation & Knowledge

DISTINGUISHING OEM, ODM, OBM IN INDUSTRIAL PRODUCTION

The article is written by Paralegal Bui Thi Nam Phuong, Ho Chi Minh legal department - currently pursuing studies in the field of Civil Law at Ton Duc Thang University.

In recent times, the manufacturing and import-export industries have experienced significant development. The global spread of globalization, coupled with a substantial increase in the demand for consumption and the trading of goods, has created favorable conditions for businesses to enhance production scale and expand export activities to international markets. In the field of import-export, terms such as OEM, ODM, and OBM have become more popular than ever. However, not everyone is familiar with these concepts and their specific characteristics.

In this article, Dai Ha Thanh Law Company will provide basic information and explain the differences between OEM, OBM, and ODM activities.

1. Concept of OEM, ODM, OBM.

1.1. OEM concept.

OEM stands for "Original Equipment Manufacturer." OEM is commonly used to refer to businesses or factories that carry out manufacturing tasks according to pre-set designs and technical specifications, selling the products to another company (responsible for distribution). In other words, an OEM company will produce products for another company under a specified outsourcing contract, as stipulated in Article 542 of the 2015 Civil Code. Consequently, the finished products will be brought to the market under the brand of the company that commissioned the production.

For example, not all components of Lenovo laptops are directly manufactured by Lenovo. Some parts, such as the processor or memory module, are produced by other units according to Lenovo's specifications. Thus, other companies responsible for manufacturing are considered OEMs for Lenovo.

1.2. ODM concept.

ODM stands for "Original Design Manufacturer," and it is used to refer to manufacturers with the capability to design products based on customer requirements. ODM businesses typically have the ability to research and develop products from start to finish, covering design, manufacturing, and packaging. Subsequently, other companies can purchase ODM products and bring them to the market under their own brand.

For example, Compal is a well-known ODM company that provides design services for Acer, Dell, Toshiba, Lenovo, and HP.

1.3. OBM concept.

OBM stands for "Original Brand Manufacturer," and it refers to manufacturers with the capability to develop and produce products under their own brand. OBM companies have more control over the entire production process, from design and marketing to sales. OBM takes responsibility for everything, from developing ideas to customer support. This means that OBM businesses have the authority to decide on design, quality, and manufacturing processes, helping create unique products that align with the company's vision and values.

For example, many cosmetic brands currently use OBM to research, develop, and produce their products, such as Estée Lauder, Shiseido, MAC Cosmetics, and others.

2. Advantages and disadvantages of OEM, ODM and OBM.

The OEM, ODM, and OBM models all play crucial roles in the modern industry. Each model brings its own advantages and challenges, catering to the needs and business strategies of companies in different ways. To make optimal decisions for a business, understanding the advantages and disadvantages of each production method is essential. Below is a comparison table of the advantages and disadvantages of all three models:

 

OEM

ODM

OBM

Advantages 

- Allows the customer company to avoid investing in product manufacturing.

- The customer company reduces production costs, rapidly expands its products and services into new markets without heavy investments in resources and time, and focuses on crucial aspects of business operations such as marketing, sales, and customer service.

- Customers of an OEM business essentially act as contract manufacturers, then sell the products under their own brand. Customers are often suppliers of raw materials and design samples, and the OEM company only carries out the production based on the design and materials provided by the customer. Therefore, even though not directly involved in production, the customer company retains complete control over the intellectual property of the product. This is because the company has invested both funds and effort in the research and development phase, as regulated by Articles 86 and 87 of the 2005 Intellectual Property Law, as amended and supplemented in 2022. Thus, the customer is the owner of the industrial property rights for this product.

- Provides more services to the customer company compared to OEM, including market research and product development.

- The customer company does not have to spend a significant amount of money and time on researching and developing new products. ODMs already possess the capability and experience in designing and manufacturing products, allowing the customer company to focus more on marketing its products.

- ODMs take responsibility for manufacturing, helping the customer company save maximum effort, costs, and time, adapting promptly to market demands.

- Partnering with the original brand manufacturer allows customer companies with limited experience in brand promotion to access the market.

- The customer company focuses on the production process while the original brand manufacturer takes on the responsibility of promoting and selling the product. This helps optimize the resources and expertise of each party.

- The ability to control the entire production and marketing process under its own brand is the most significant advantage of an OBM business.

Disadvantages

- OEM businesses do not have the authority to decide on the final design, quality, and production processes; they only produce products based on the provided design data from the customer company. This can potentially impact the performance and quality of the product.

- When an OEM company shares information about the product design with the customer company, there is a risk of information leakage and misuse for unintended purposes.

- The customer company lacks flexibility in customizing products. They must adhere to the design and production processes of the ODM, thereby limiting the ability to modify or personalize products according to the company's specific needs.

- The ODM completely holds the design and manufacturing aspects, it poses a challenge of facing numerous competing companies with similar products. When a company orders a product from an ODM, other companies may collaborate with the same ODM to produce similar products and compete directly.

- The customer company has to accept a loss of some brand control. OBM retains the right to make decisions regarding promotion, marketing, and other brand-related matters.

- When a company does not independently promote its brand, there is a risk that the customers may not recognize the company's brand but instead associate it solely with the OBM. This poses a risk of losing the company's recognition in the market.

3. Distinguish between OEM, ODM and OBM.

Distinguishing between the OEM, ODM, and OBM production models plays a crucial role in gaining a profound understanding of manufacturing and business strategies. The differentiation of these three production models assists in managing distinctive strategies, suggesting separate approaches to meeting market demands, and building brand reputation.

 

OEM

ODM

OBM

Nature

As a made-to-order manufacturing business, we cater to the unique designs and specifications of our customers.

As a manufacturing and design enterprise, we encompass the creation of products, including ideas generated by our clients themselves.

As a manufacturing enterprise with the capability to design, develop, produce, and export products under our own brand.

How to operate

Assuming responsibility for product design, manufacturing, and quality control.

Typically possessing the capability to design, develop, manufacture, and export products according to customer specifications.

Typically possessing the capability to design, develop, manufacture, and export products according to customer specifications.

Object

The products will be delivered directly to the customer and distributed through their designated channels.

The products will be repurchased by the customer, featuring their logo, and sold under the customer's brand.

OBM products are not only sold directly to customers but can also be distributed through agents and other retail outlets.

Ownership

The customer company holds the industrial ownership rights for its products.

The industrial property rights of the product belong to the ODM business.

The OBM enterprise owns the industrial property rights for its products.

Understanding and distinguishing between the three models of OEM, ODM, and OBM is crucial. This helps businesses choose manufacturing and business methods that align with their goals. OEM is a suitable model for companies looking to save production costs and focus on marketing and sales. On the other hand, ODM is suitable for companies seeking innovation and the development of new products. Meanwhile, OBM is appropriate for companies looking to build and develop their own brand. The above is the comprehensive overview of the research by Dai Ha Thanh Limited Liability Law Company on the concepts of OEM, OBM, ODM, and the differences between these three forms. If you have any questions or need advice, please contact us for professional legal consulting services.