What is OEM

What is OEM

OEM originally refers to a modern and popular production method in which the purchaser provides equipment and technology, the manufacturer provides manpower and space, the purchaser is responsible for sales, and the manufacturer is responsible for production.

Origin and development of OEM

OEM is an inevitable way under the trend of large-scale social production and large-scale cooperation, and it is also one of the effective ways to rationalize resources, and it is the result of large-scale social production. In Europe, industry associations with OEM nature have been established as early as the 1960s. In 1998, OEM production and trade reached 350 billion euros, accounting for more than 14% of the total European industrial output value. OEM production has become an important component of modern industrial production. part. With the further acceleration of the development trend of economic globalization, OEM demanders are likely to select OEM suppliers in a wider range, especially to countries and regions with low processing and manufacturing costs.

In Asia, in order to quickly occupy the market and reduce production costs, Japanese companies were the first to adopt the international OEM production and trade form. , India has also become the world's largest exporter of computer software through OEM. In the IT industry, from technology to components to functional modules of software, who is omnipotent?
When talking about this issue, Compaq President Feffer said: "Make money in the most direct way!", and publicly stated that he would save the burden of so-called assets (plants, equipment, office buildings, etc.). Some people even say: OEM creates the entire IT industry! American Nike, whose annual sales revenue is as high as 2 billion US dollars, does not have a production factory of its own, only focuses on research, design and marketing, and all products adopt OEM mode, which has become a successful model of OEM management in the world.

The reasons for the rapid development of OEM in international trade

The OEM method is widely used in the manufacturing industry, especially in the rapidly developing information industry. For example, according to the global authoritative statistical agency), more than 95% of the hard disks used by the global personal computer manufacturers are provided by the three major hard disk suppliers Seagate, Quantum, and West Digital in the form of OEM. The reason why it can be widely used is that it has adapted to the needs of the new competitive situation brought about by the rapid development of global technology since the 1990s. With its flexible and effective management characteristics, OEM mode has adapted to the development of this new situation and has been widely used.

OEM adapts to the needs of rapid technological development

The rapid development of technology has led to the shortening of the product life cycle. The company's competitive strategy is changing from a production-oriented mode centered on expanding production scale and reducing production costs to a market-oriented operation mode centered on the application of new technologies and the rapid introduction of new products. According to IDC data, in the 1950s and 1960s, the average life cycle of electronic products was 10 to 12 years, and in the 1990s, this value dropped to 6 to 18 months. In the electronic information age where new technologies are emerging one after another, business operators have increased their investment in the research and development of new products in order to gain competitive advantages. The parts are produced by themselves, and the auxiliary parts are contracted out by OEM and let other companies produce them. In this way, the production cycle can be shortened, and a large amount of money saved for the purchase of production equipment can be used for research and development, so that the company can maintain a virtuous circle in terms of constant response speed. It is possible to maintain a flexible and elastic production mechanism that adapts to market development dynamics.
From another point of view, the product life cycle is shortened, and the mental wear and tear of enterprises' investment in production equipment will inevitably increase. In order to reduce opportunity costs, a large number of OEM methods are used for production. Arrow" strategy.

OEM adapts to the development needs of world-class brands

Economic competition is expanding on a global scale, and brands and channels are increasingly playing an important role in the final value of actual products. The inclusion of the original manufacturer's logo in the OEM method shows the importance of this.

In the economic competition, people are more and more aware of the importance of brands, because only by establishing a good image among consumers can we win the support of more marketing channel partners, and through joint efforts with channel partners, products can be sold to the market. More standardized consumer group penetration. For this reason, many multinational companies with good operating performance have been focusing on the construction of brand image and marketing channels. Therefore, make full use of the OEM method to push mature products or products with production advantages of other enterprises into their own marketing channels, and use their advantages in value-added services to win a wider range of consumers, which can also be called "" Borrowing the chicken to make the egg" is a good strategy.

OEM adapts to the needs of the development of the global information management system

With the development of science and technology, the computer integrated production system (CIMS) has gradually been widely used in the production process, and quality has gradually become a controllable factor in the production process. This provides a material guarantee for OEM manufacturers to provide consumers with products of corresponding quality that are suitable for consumer needs. This is one of the reasons why the OEM method is popular in the information industry with a high degree of production automation. This is also one of the reasons why multinational corporations like IBM and HP, which only have more than 100,000 employees, drive sales of tens of billions of dollars. Investing limited resources into channel construction also provides a fundamental guarantee for enterprises to improve the speed of market response.

OEM adaptation to provide customers with complete solutions

In the era of information economy, the division of labor in the industry is becoming more and more detailed, new products are emerging one after another, and the high-tech content is gradually increasing. It is impossible for final consumers to judge their applicability based on the technological content of a product, because what they need is a full range of solutions-based services. In a sense, the competition of modern enterprises is to assess the ability of enterprises to discover consumer needs and provide comprehensive solutions for them. The importance of a single product is gradually decreasing. The real problem is: how to meet the increasingly complex and personalized consumer demand.

The OEM method proposes a good way: that is, based on its own proprietary technology, the enterprise integrates other products produced by the OEM method, so as to provide customers with solutions suitable for their own needs. This not only promotes the development of the company's own technology, strengthens the influence of its own brand, but also enables customers to receive more comprehensive, timely and thoughtful services from comprehensive solutions. From another point of view, OEM enterprises have also developed under the drive of enterprises, which fully reflects the principle of rational allocation of resources. In addition, operating in OEM mode can more effectively allocate limited internal resources of the enterprise, minimize the level of management, and improve the efficiency of operation and management.

OEMs adapt to the need to create novel competitive advantages

The development of modern economy has changed people's views on pure competition, and competition and cooperation have become the two major driving forces for the development of modern enterprises. In the products with its own advantages, the use of competitors' OEM products makes their advantages more prominent, and competitors also have new development space, and competition has become cooperation. At the same time, with the development of science and technology today, it is difficult for an enterprise to master all the patented technologies of a product at one time, and to ensure the integrity of intellectual property rights by providing products in the form of OEM to each other. In order to avoid the waste of resources caused by disputes or repeated development, it can also promote the market influence of a certain technology, making it a new industrial standard or a group alliance standard, so that disorderly competition becomes relatively orderly. 

Difference between OEM and ODM

OEM products are tailor-made for brand manufacturers. After production, only the brand name can be used, and the manufacturer's own name must not be used for production.

ODM depends on whether the brand company has bought out the copyright of the product. If not, the manufacturer has the right to organize production by himself, as long as there is no design identification of the enterprise company.