ODM in China has become a vast business segment. This is the ultimate guide for Original Design Manufacturing in China and how it can add value to your business
For most importers, the real challenge in their trade is coming up with a product sourcing strategy. While selecting a low-cost country sourcing, China is often found at the top of the list. China has maintained its status as the largest manufacturing hub in the world for the 11th consecutive year, comprising 30 percent of the global manufacturing sector.
The success of any import business requires a strategic and enduring relationship with a product sourcing agent in China. In this article, we would like to talk about what makes China such an attractive destination for Original Design Manufacturing (ODM) and Original Equipment Manufacturing (OEM), as well as how to work with Chinese manufacturers to create custom products. Read on to get useful guidance to navigate the process successfully.
Original Design Manufacturing is a form of contract manufacturing that includes a range of functions, such as product development, manufacturing and product lifecycle management. An original design manufacturer helps companies develop new specifications and designs from ideas provided by their client.
In some cases, such manufacturers already have their own products, which can be customized to meet the brand’s specifications. Either way, companies can import from China by working with an ODM and brand the products with their label.
On the other hand, original equipment manufacturing (OEM) is another form of outsourced or contract manufacturing that’s narrower in scope compared to ODM. OEM involves the importer/buyer and a manufacturing unit that’s equipped to make products as per their clients’ specifications.
Generally, OEM is typical when dealing with a product that involves low customization and requires new tooling, for example, a plastic injection molding, before starting production. Most automobile companies choose China to get OEM parts, which are used for making the final product.
However, before working with an OEM, the company has to do its own R&D and come up with its own design. This is what makes it different from ODM, where the importer gets end-to-end designing and manufacturing services.
Businesses looking for low-cost country sourcing options can choose China for both ODM and OEM. However, many businesses might find OEM unfeasible if their product concept is based on an existing design.
SMEs and startups, who typically have a shoestring budget, can go for ODM product import from China. This would provide them enough scope for product customization at greatly reduced costs.
In 2019, China contributed 28.7 percent towards global manufacturing output, surpassing the United States by nearly 10 percent. In the same year, Chinese manufacturers added a total value of close to $4 trillion to the global economic output and 30 percent towards the country’s GDP. 2020 was not an agreeable year for China’s manufacturing sector due to the COVID-19 pandemic, reaching an appallingly low mark of -15.70 percent. However, production hit 39.5 percent by January 2021 (Source).
Despite some initial linguistic barriers and differences in work standards compared to the rest of the world, China continues to stand strong as a resilient and welcoming manufacturing destination. A case study of Original Grain, the maker of wooden watches, demonstrates the concept of how to create a product in China and make it a huge success.
Nonetheless, here are a few reasons why businesses across the world view the Chinese market as an integral part of their sourcing strategy:
As per 2020’s figures, China’s workforce in the manufacturing sector has been the highest in the world — 112 million. So, if a business wishes to import from China, then it’s likely to get low-cost labor in surplus. This is the reason why there is such a huge number of plastic manufacturers, aluminum extrusion companies, die casting, metal stamping, and other labor-intensive sectors in the country.
Factories in China are equipped with the best-in-class technologies to handle large orders. Their capacity is impressive and the turnover time is really quick. Coupled with the low cost of labor, importers can hire more people to accomplish high-volume productions.
Chinese sourcing providers take their clients very seriously, which is why they leave no stone unturned to provide the best sourcing support services. They often exceed their clients’ expectations and abide by all the terms laid down in the contract.
Chinese manufacturers enjoy a market base that extends both domestically and internationally. So, if a business works with a company in China, it’s likely to get ready access to a humongous market. This can open attractive expansion opportunities for them.
Since ODM products are relatively less time-consuming and less risky to produce, suppliers can offer lower MOQ for such products. This is because these manufacturers are already experienced in making the specific design and can utilize existing materials and subcontractors for the job.
By now, you might have a clear idea of the manufacturing sector in China and how working with Chinese manufacturers can prove economically rewarding. Up next we lay out various tips for forging a long-lasting relationship with them:
Making custom products in China is definitely an alluring prospect, but your journey can seem vague if you don’t have a concrete sourcing strategy in place. You might be aware of the market in China, but it is difficult for a newcomer to understand everything. At the same time, it can prove detrimental to enter uncharted territory with little or zero information.
So, your own research about Chinese manufacturers and agents will have to be rock-solid. You should have a crystal-clear idea of how your product should look like and what you wish to achieve from marketing, to selling the product. When you are well-equipped with information, you will be able to craft a more meaningful sourcing strategy.
The truth is that the way an Asia sourcing agent operates will be completely different from the way someone of the same profession operates somewhere else. There are stark differences between the Chinese business culture and that of other countries.
China is a large country with a diverse demographic composition. While the work culture differs from company to company, there are widely accepted cultural norms that the country’s citizens wish to uphold at all times. So, being aware of these norms will greatly help you establish a long-lasting relationship with Chinese manufacturers.
This is perhaps one of the most important decisions that you will have to make while manufacturing custom products in China. Working with an Original Design Manufacturer will allow you to leverage your existing technology without investing in a new one — something that keeps your overall business cost low.
You also need to look into the size of the manufacturing unit, its production capacity, workforce, quality control, and logistics. You need to identify Chinese manufacturers who meet your product sourcing needs and are equipped with the best technology to produce superior-quality products. Conducting a detailed process audit of different factories will help you identify the most suitable manufacturer.
After identifying a factory and procurement agent in China, you need to set up your supply chain. Whether you are looking for a wire harness manufacturer or any other supplier, you need to establish a clear-cut process to discuss requirements from the procedure of placing production orders all the way to the process of delivery of said products.
Take, for example, you are working with a China purchasing agent and a wire harness manufacturer. In this case, the Bill of Material (BOM) should be expressive about the supplier of raw materials and the consistency in the quality of products. Your supply chain should be adaptable enough to keep pace with increasing volume demands and ensure timely dispatch of your orders.
It won’t be possible to know if product engineers are doing a good job or not if you don’t have a testing plan in place. You will have to test your product’s prototypes for performance, safety compliance, strength, and other features. Functional testing will help you push your product to its limits and see if it serves the desired purpose.
Even after approving the prototype of your custom product, you will have to look into the quality monitoring process and fix all issues at the source itself. A quick run of your product batches on the assembly line will help you know the accuracy and effectiveness of the processes.
Last but not the least, making custom products in China requires you to build on your negotiation skills. Chinese manufacturers value trust and transparency in all their dealings. So, you need to approach the negotiation process very carefully.
As much as possible, you should strive to build a personal camaraderie with a China buying agent and manufacturer so that they trust you and your business. It’s the goodwill that you build over time that matters the most for your business’ success. Know the terms and conditions of the manufacturing contract properly and remain calm throughout the negotiation process.
It’s true that new product development can be a messy and stressful process because you, as the business owner, will have to juggle a slew of tasks. But that does not mean that you cannot make custom products in China. If you are well-equipped with the recommended information and have connected with the right procurement agent in China and manufacturing units, you will definitely reap a number of economic benefits.
The success of any new product depends on its quality and the level of innovative thinking that has gone into its development. When you choose China as your sourcing destination, you can rest easy knowing that you are working with the right people. Have patience and keep up with the hard work!
Sourcing Allies is a team of expert China sourcing agents that has helped western customers manufacture and source products from low-cost regions since 2006.
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