Understanding OEM, ODM, OBM

OEM (Original Equipment Manufacturer):
An OEM is a company that does not engage in direct manufacturing. Instead, it outsources production tasks to other specialized manufacturers (OEM suppliers). By doing so, the company only needs to pay for materials and processing fees without bearing the burden of equipment depreciation or investing in its own factories. This allows for flexible, on-demand ordering that can be quickly adjusted according to market changes.

ODM (Original Design Manufacturer):
In this model, the client provides the initial product concept → the ODM service provider handles product design, manufacturing, and post-sale support → OBM brands purchase these products and sell them under their own brand names, often with only minor modifications to the original design.

OBM (Original Brand Manufacturer):
An OBM operates its own brand and ensures all products carry its brand label.
The companies working downstream are categorized based on their specific roles:

• ODM companies handle the full product design and manufacturing process to meet OBM brand requirements.

• OEM companies only handle production based on the brand and design specifications provided by OBM brands (e.g., Foxconn).

For a factory with production lines, the distinction is as follows:

• ODM clients are those who outsource the entire process, from product design to manufacturing (these clients are OBM brands).

• OEM clients only outsource manufacturing, providing their own brand and design (these are also OBM brands).

If such a factory attempts to become an OBM (by launching its own brand), it will directly compete with its existing clients, risking pushback or being squeezed out of the market.

The Three Key Stages in the Product Chain:

1. Product marketing and promotion

2. Product design and innovation

3. Product manufacturing

For OBM brands:
They maintain tight control over Stage 1 (marketing and branding). Stages 2 (design) and 3 (manufacturing) can be outsourced to ODM and OEM suppliers, respectively. (While OBM brands could handle design and manufacturing themselves, it is often inefficient and unnecessary.)

• Why outsource Stage 3 to OEM suppliers?
  Because it only requires paying for materials and processing costs, avoiding the capital burden of building and maintaining factories. This allows for flexible, market-driven production.

• Why outsource Stage 2 to ODM suppliers?
  The biggest advantage is to significantly shorten development time by leveraging the ODM’s design capabilities.

Example:
Nike finds several skilled shoe manufacturers in Japan. Nike provides its own designs and simply commissions them to manufacture the shoes — this is an OEM relationship.
If a factory owner is ambitious and designs several new shoe models on his own, and Nike likes them, purchases the designs, and sells them under the Nike brand, this factory has now shifted to an ODM model.
If the factory owner wants more, decides to create his own brand called “NAKE,” establishes his own marketing channels and retail network — then Nike would no longer collaborate with them. At this point, it becomes a competition between two OBM brands.