How to achieve the transformation from OEM to ODM? Are there any successful examples?

At present, Chinese garment manufacturing enterprises are undergoing a large-scale transformation. Clearly, compared to the traditional OEM model focused on low-value contract manufacturing, these companies now need to gain more control and bargaining power when facing external competition. Breaking free from the fate of pure OEM work and shifting from quantity-driven growth to quality and efficiency-driven growth requires garment manufacturers to evolve from “OEM” to “ODM.”

OEM, or Original Equipment Manufacturing, refers to contract production where the brand owner provides the design, and the manufacturer is only responsible for production. Moreover, the manufacturer is prohibited from offering the same design to third parties. In contrast, ODM, or Original Design Manufacturing, means the manufacturer designs and produces products based on the specifications and requirements of another company. This model requires the manufacturer to possess both design capability and technical expertise. As long as the brand company does not purchase the exclusive rights, the manufacturer retains the right to continue production and even develop its own brand — taking a step closer to becoming an OBM (Original Brand Manufacturer).

For example, Levi’s collaborates with Factory A in China. Levi’s has its own product designers and only commissions Factory A for production — this makes Factory A an OEM. If Factory A designs several styles of pants, and Levi’s finds them suitable, buys the rights, and sells them under its own brand in its retail stores, Factory A has then transformed into an ODM.

Over the past 20 years, the golden era of China’s garment OEM industry was characterized by taking orders, producing according to requirements, and earning processing fees per piece. However, as domestic production costs have risen and outsourcing orders shift to lower-cost countries or regions, many manufacturers are now transitioning toward the ODM model.

Unlike OEM, the path to ODM transformation involves addressing three key challenges: funding, market knowledge, and original design.

01 Funding:
Shifting from OEM to independent R&D requires substantial financial support during the transition. ODM demands innovation and original design from enterprises, as imitation alone can no longer sustain profits in the garment industry. With innovation becoming imperative, the associated costs are also significant. Therefore, doing only ODM is risky. For manufacturers looking to transform, it is essential to pursue both OEM and ODM simultaneously — continuing contract manufacturing while developing their own designs and brands. Since these two models target different customer bases, they can coexist without conflict while maintaining healthy cash flow, eventually allowing for a smoother transition to full ODM operations.

02 Market Knowledge:
At the early stage of transformation, unfamiliarity with the market is the biggest challenge. Without understanding the market, there is no guarantee that brand owners will accept the designs. Factories have traditionally been focused on manufacturing and often lack insights into end markets. Therefore, they must first define their target customer base, identify precise market needs, and collect feedback through in-depth market research to refine their designs and production. Driving sustainable business growth requires a professional and sizable team behind these efforts.

03 Original Design:
With solid market research as the foundation, original design plays a critical role. Many in the ODM field agree that designers are the key to successful transformation. A designer with a keen sense of the fashion market can break free from homogenization, create products that stay true to the brand’s style while appealing to consumers, and ensure the company’s sustainable development. However, China currently lacks a sufficient pool of designer talent to meet the evolving demands of the garment industry.