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What Is OEM?
2017-07-18

The Definition of OEM

  OEM could be taken as Original Equipment Manufacturer, and it also means a kind of cooperation that brand owners do not manufacture products by themselves, but contract with other manufacturers to produce products for them, and then brand these products with their own brands to earn profits.

OEM Benefits to Manufacturers

  Compared to brand owners, OEM manufacturers are in an awkward situation, but any way, they could make profits.

  Manufacturers in their own countries may have been meeting severe competition, and in order to develop overseas market and to popularize their own brand, they would start from producing for some famous brands.

  When OEM orders are placed, it comes to massive production, and this follows the economies of scale, which means the single unite product price would fall, and if these manufacturers meet the problem of over capacity, they would save more cost from OEM.

  Manufacturers could also learn from those brand owners in aspects like production management, marketing and product development to benefit themselves in the long term.

  Of course, manufacturers could get more ideas from brand owners about product innovation, so that they could provide improved products and also rich their product gallery. In addition, either side of OEM contract could shift to a more profitable way, which means OEM is high efficient.

  And when it comes to sales, problem due to area and religion could all be solved by this kind of cooperation, and thus investigation costs are saved.

OEM Shortcomings to Manufacturers

  Most OEM manufacturers were rapidly developed on the background of industrial transfer, which means they could potentially meet some problem like lower profit and slower development, and now they are facing a more severe situation.

  The first barrier is the expanded scales, manufacturers might have been competitive in their industry, but they didn’t improve their position in the industrial chain, so that their profits are dependent on the market, and their position in industry would be lower, and thus earning less profit.

  The second problem is the rising cost, with the development of economy, labor price has been rising, so that manufacturers are earning less and less profit, what’s worse, when brand owners find a lower cost partner in other areas or countries, manufacturers would lose their ability to survive.

  The last threat is the shortcoming of marketing, most OEM manufactures depend greatly on brand owners, and they do not have their own resource of marketing, and the market would totally be strange for them, and since they’ve lost most of their abilities on marketing, there would be less chance for them to earn profits, and in the end, these manufacturers would fall and bankrupt.

  Of course, there are many other potential problems, and OEM manufacturers are making efforts to develop their own abilities and resources to market, and they would upgrade themselves for a better competitiveness.


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